This week witnessed several important developments in China’s efforts
to eventually allow the Chinese Yuan to float freely. First, China
announced it may soon allow interest rates to fluctuate in accordance
with market forces, rather than rigidly controlling rates. In response,
one of China’s largest banks announced the completion of China’s first
ever interest rate swap agreement, which serves as a proxy for
expectations surrounding future interest rates. These developments are
important because higher interest rates would surely put strong upward
pressure on the Yuan. Meanwhile, the Yuan has continued to appreciate in
forex markets (albeit slowly), and is on pace to breakthrough 8.05
RMB/USD next week.
Read More: China launches RMB interest rate swap transaction
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