Deutsche Bank says the Chinese Authorities are slamming the currency to disincentivise speculative inflows into China

Deutsche Bank says the Chinese Authorities are slamming the currency to disincentivise speculative inflows into China. The inflows of hot money have increased sharply since 2013 when fixed income yields increased sharply. An indication is the change of international reserves: The international reserves increased USD$324BN in December, which cannot be explained solely by foreign direct investments (FDI) and the trade surplus. As Chinese interest rates are expected to stay relatively high, the PBoC is concerned about further inflows. Conclusion: We expect the long-term appreciation trend to resume at a gradual and modest pace and remain a key tool for re-balancing the Chinese economy towards more sustainable growth. However, the upward trend will materialize with more short-term volatility in order to give a disincentive for short-term speculators. (VIEW LINK)