The People’s Bank of China (PBoC) appears reluctant to trigger further headline policy rate cuts. However, when most lockdowns are lifted, the central bank could resume monetary policy easing, weaking the Chinese yuan, economists at Société Générale report.

The yuan outlook is hinged on China’s monetary policy trajectory

“Mounting economic pains will pressure the government to relax its zero-Covid policy, and that by end April the lockdowns in Shanghai will be eased enough to allow supply chains to function nearly normally. If so, the PBoC could resume rate cuts to support the economy further, which would further weaken the yuan toward 6.50.”

“An overshoot to 6.70 or above cannot be ruled out, as the Fed is set to tighten aggressively. Besides, fiscal easing is underway, the credit impulse is picking up and infrastructure investment growth has started to reaccelerate.”