China moving towards market-based monetary policy, says ANZ

HONG KONG – ANZ Bank says the Peoples Bank of China has started to gradually drain liquidity in the market after a record injection before the Chinese New Year holidays. “Meanwhile, the central bank will increase the frequency of open market operations, suggesting that China may be moving to a more market interest rate based monetary policy regime,” the bank says.

“Going forward, the interest rate corridor and related monetary policy tools will become more important to watch.”
ANZ says it appears there has also been yet another change in the way the USD/CNY fixing is being managed by Chinese authorities.
“Greater emphasis is being placed on RMB basket movements as opposed to the fixing rate against the USD,” ANZ says.
“If this continues, it suggests there will be much larger two-way volatility in USD/CNY fixings going forward. This should help manage exchange rate expectations by deterring the market from taking one-sided positions.” www.live.anz.com (ATI).