Chinese officials might be trying to drain liquidity from their economy but the central bank remains fearful of raising interest rates too quickly, according to one strategist who suggests President Donald Trump might be indirectly influencing policy in the country.
"What is China trying to do about (large outflows)? Yes, they put up interest rates, they're draining liquidity, but still they don't seem to be really trying to stem the loan growth," Jane Foley, senior forex strategist at Rabobank, told CNBC Wednesday.
"We know that they've got several issues, we know that they are trying to perhaps drain the liquidity, but they don't want to take action. They don't want to put up interest rates too much because I think they appear to be fearful that that could slow growth. With respect to Donald Trump, I think part of the reason they are still trying to have this two-way trade in the exchange rate is to give this impression that they are not a currency manipulator, they are of course trying to stop the rate of movement," she added.
Data released Tuesday showed China's foreign exchange reserves dropped more than expected in January, to below the $3 trillion threshold for the first time in almost six years. Such figures have raised concerns among analysts that continued outflows will prompt the Chinese authorities to devalue their currency. Foley noted the data also showed a continued rise in loan growth in the world's second-largest economy, which she said could mean this cash was making its way out of the country.