Market forces to play bigger role in China

There is a speculation that CNY's weight in IMF's Special Drawing Rights (SDR) may be below IMF's preliminary estimate of 14-16% in the July report. At present, the USD, EUR, GBP and JPY have weights of 42%, 37%, 11% and 9% respectively. The current methodology gives 2/3 weight for exports and 1/3 for FX reserves.

A new methodology that includes financial flows, exports, and reserves, may give higher weight to the USD share and GBP, JPY, and CNY's share around 8-10%. 

PBoC yesterday cut its overnight and 7-day standing lending facility (SLF) rates to 2.75% and 3.25% respectively. The central bank states that this will help in increasing the interest rate corridor, guide borrowing costs, and aid the transmission of monetary policy.

"It would also help prevent sharp movement in the money market if liquidity dries up. We see it as part of ongoing efforts in interest rate liberalization and the bigger picture of allowing market forces to play a bigger role in the economy", argues Commerzbank.