PBoC unlikely to depreciate Yuan in near-term, Goldman says

The Chinese central bank acted on Friday to curb the risk of an unwelcome tightening in financial conditions, Goldman Sachs believes.

The decision to lift the deposit rate ceiling was a major step in interest rate liberalisation, the broker added.

“This move is also important as it sends a clear message that reform is not being halted despite economic and market turbulence in recent months, in our view,” the analysts said.

Goldman forecast an additional 50 basis point cut before year-end, as the PBoC moves to offset the impact of ongoing capital outflows.

“Other policy tools, especially fiscal and quasi-fiscal policies, will also be used. The only policy move not likely to be used in the near term is further currency depreciation,” Goldman added.

“We expect the Chinese economy will show modest sequential recovery in 4Q […] Key monthly economic indicators should show evidence of this in the next 1-2 months.”