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China could find itself in a bit of a bind if the yuan continues to weaken, as the trend could prevent the PBOC from lowering interest rates to boost the slowing economy, Moody's says. Any rate cut could prompt
further capital outflows
- which hit a net $71.4B in Q2 - and so hurt efforts to speed growth up. The central bank has recently been propping up the yuan in the market by selling forex reserves.
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Because China has an export economy (circa Japan in the 70's to 2008) they want to keep their currency weak to keep their unemployment low and keep their economy inflated/"growing". We have lowered interest rates to weaken our currency to help banks and try increase employment. A race to the bottom. Japan has very few levers left to pull.
Aug 17, 2012. 08:44 AM
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