Why China’s economy has hit a wall 
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Scotiabank remains moderately bullish on the Chinese yuan amid rising risk-free interest rate in China. Chinese companies bought a net USD 2.47bn worth of foreign currencies in FX spot market in March, down from a net USD15.18 billion of FX purchases the previous month.
However, they did sell a net USD2.88 billion of foreign currencies last month if the original data were adjusted for matured FX forward contracts. While the supply and demand have been "relatively balanced" recently in FX spot market, Chinese companies have been net selling FX forwards increasingly since last September as the PBoC boosted the ratio of FX risk reserves paid by banks for their purchases of FX forwards (including FX options and FX swaps) on behalf of their clients to 20 percent from zero percent with effect from August 6, 2018 to curb the yuan’s marked depreciation.
In March alone, they sold a net USD18.25 billion of FX forwards, compared to a net USD 6.64bn and USD9.57 billion of FX forward sales in January and February respectively. With contracts of FX forward purchases to mature further in the coming months, we will likely see Chinese companies increasingly net selling foreign currencies in FX spot market as well amid resuming interest in long yuan positions.
The WSJ reported on Saturday that "Federal Reserve officials are starting to talk about the conditions under which they would cut interest rates, including a scenario where inflation drifts lower even if the economic growth doesn’t falter."
Meanwhile, the PBoC is expected to maintain its pro-growth stance but will a less monetary accommodation. Sheng Songcheng, former head of the PBoC’s Statistics Department, wrote in an article in the Xinhua-run Economic Information Daily on Friday that a RRR cut is unlikely in the near future, Scotiabank added in its report.
In addition, the Politburo held a meeting on Friday to discuss the current economic situation. According to Xinhua News Agency, China’s top decision-making body said that the nation’s economy maintained stable operation in the first quarter with better-than-expected growth rate setting a good start for the year and that downward pressure on the domestic economy is partly due to cyclical factors but to a larger degree having deeper structural and institutional roots.
