(Reuters) – China’s central bank will cut the amount of cash that banks must hold as reserves from Feb. 5, governor Pan Gongsheng said on Wednesday, the first such cut for the year as policymakers extend efforts to shore up a fragile economic recovery.
The People’s Bank of China (PBOC) would cut the reserve requirement ratio (RRR) for all banks by 50 basis points (bps), thereby freeing up 1 trillion yuan ($139.45 billion) to the market.
Chinese blue-chip stocks, which have hit five-year lows earlier this week, bounced 1.8% on the day. Hong Kong’s benchmark index soared by 3.6%, having endured its most volatile start to the year since 2020 and after plunging on Monday to 15-month lows.
The yuan hit its highest since Jan. 12. On the offshore market, the yuan held mostly steady against the dollar at 7.168.
COMMENTS:
TIM GRAF, HEAD OF EMEA MACRO STRATEGY AT STATE STREET, LONDON:
“My initial thoughts are that this is a little bit overdue as we have expected more easing to support the economy.”
“Along with some of the stimulus announced yesterday, it does seem like they (the authorities) are paying more attention to stimulus that can support growth and markets.”
“But the challenges are still there and the banking system is still in trouble.”
“This is not entirely unexpected and this is not the panacea that will change the narrative too much. More targeted stimulus would be a more powerful lever to push and they seem to reluctant to do that.”
KHOON GOH, HEAD OF ASIA RESEARCH, ANZ, SINGAPORE:
“It’s probably not surprising. Markets and ourselves have been calling for RRR cuts to happen given that the economic recovery has been pretty weak, and I guess the timing is not unexpected, especially coming after the news yesterday about some kind of rescue plan for the stock market. In terms of market reaction, I think the equity market obviously has taken the news fairly positively, so the rally managed to continue.”
CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE:
“Markets have been expecting the RRR cut for a while so the announcement is not entirely a surprise. That said, policymakers should ride on the positive momentum by announcing some form of support measures for the economy targeting consumption. This, alongside the 1 trillion liquidity injection (RRR) and potential support for the equity market can help rebuild credibility and shore up investor confidence.”
CHRIS SCICLUNA, HEAD OF ECONOMIC RESEARCH, DAIWA CAPITAL MARKETS, LONDON:
“It’s one of the usual tricks the authorities resort to when they want to provide some support, whether to the markets or to the economy as a whole. It’s arguably a more effective tool than a rate cut in China, given that we’re in this environment of excess capacity in so many sectors and the ongoing structural and cyclical adjustments.”
“It’s a welcome step, but it’s not going to be game-changer. There are still questions about the extent to which the National Team, and various institutions can try to pull together to try to support the market and start up the buying of stocks and draw a line under the sell-off there.”
“But there are obvious question marks as to the extent to which that can turn around the market or not. It’s clear this isn’t any speculative pressure against the market that is causing the rout. It’s a reflection of the trend going forward.”
(Reporting by Reuters Global Markets team; Editing by Amanda Cooper and Dhara Ranasinghe)
Comments