BofA: PBoC Signals Preference For Controlled Depreciation

Bank of America note that “the PBoC took markets by surprise on 15 August, delivering a 10bp cut to its Medium Term Lending Facility (MLF). The move by itself will do little to stimulate the economy, but its signal for controlled CNY depreciation is meaningful… The move saw CNH forward points move deeper into discount. Negative forward points deepen the positive carry for short CNY positions, further encouraging shorts. We believe that this is consistent with a policy desire to engineer a controlled depreciation to CNY7.00 by year-end and bring the PBoC's CFETS basket to below 100. This would allow for a stealth easing of financial and monetary conditions in China.”