Its also not quite clear why the RMB has been allowed to move in a much faster fashion than it has been for sometime. This article from Gavyn Davies does a good job of summing up what might be going on, from the more benign explanation of introducing some risk into carry trades that assume the RMB will only go up, to a more significant change in policy.
I think its important to highlight that the real RMB rose a huge amount through 2013 and as I have posted before here, this is a key risk to the China growth profile in 2014 even with OECD demand strengthening. So perhaps a halt in appreciation of the RMB is to do with policymakers recognising this risk.
What is also interesting is that the devaluation of the RMB has occurred at the same time as a sharp drop in SHIBOR rates. While commentary seems focussed on the removal of liquidity in banking markets, overnight SHIBOR rates are currently at levels seen at this time last year.
Do these two events mean there has been a switch in monetary policy towards easing from tightening? This is particularly difficult to gauge as the PBC don't really announce changes like other central banks do these days. They tend to use a myriad of tools to achieve different goals, some of which are too manage the cycle, but also manage structural developments in the macro-financial economy.
It doesn't really seem like they are yet to achieve those goals. Growth is slowing a little faster but isn't alarming, while January's social financing data show credit growth remaining very strong.
So to me it looks more like tinkering rather than a move to take the foot off the monetary brakes.
