China to cut requirement reserve ratio by 1 percentage point

10 Octobre, 2018, 15:00 | Auteur: Auguste Feret
  • The reserve requirement cut comes after Beijing pledged to expedite plans to invest billions of dollars in infrastructure projects

The US is battling an exchange war with China which debilitates the viewpoint for Chinese assembling and fares.

"In the face of rising trade frictions, moderate yuan depreciation aids exporters and is what the market expects to see", Tang Xiangbin, currency analyst at China Minsheng Banking Corp said, predicting additional USA rate hikes would help strengthen the dollar further. "All news is against it", Fraser Howie, an independent analyst who has written books about China and its financial system, told CNBC's "The Rundown" on Monday.

The move is not expected to put depreciatory pressure on the yuan, the statement said, adding that the bank would continue to maintain a "prudent and neutral" monetary policy.

Friday's USA non-farm payrolls showed job creation slowed in September, likely from Hurricane Florence's impact on restaurant and retail payrolls, but the Labor Department report also showed a rise in wages that could keep the Federal Reserve on track for more interest rate hikes.

Pence's speech marked a sharpened US approach toward China, going beyond the bitter trade war between the world's two biggest economies, which has magnified concerns about the outlook for China's economy.

Zhang Yi, chief economist at Zhonghai Shengrong Capital Management said the RRR cut indicates central bank's worries about the impact of "external shocks" to the markets. Beijing is therefore taking pre-emptive steps to avoid massive outflows of investor money from its financial system, analysts said, adding that could deal another blow to its economy which is already experiencing slower growth.

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Zeng Gang, a researcher with the Institute of Finance and Banking of the Chinese Academy of Social Sciences, said using the RRR cut to replace the MLF operation could optimize the maturity structure of credit, allow financial institutions to access long-term funds steadily and therefore reduce the financing costs of the real economy.

The easing, announced on the last day of China's week-long National Day holidays, came at a time when the world's second biggest economy is losing momentum amid an intensifying trade war with the US. Tokyo was closed for a public holiday. The rest of Asian markets fell on Monday, extending last week's sell-off.

China's $12-trillion economy is showing signs of a major setback.

The blue-chip CSI300 index was down 2.3 percent at the open and off more than 3 percent by 0215 GMT, while the Shanghai Composite Index dropped some 2.5 percent. "There is so much headwinds towards it now and I think it's right to prepare for the worst and expect the best", Gareth Nicholson, head of fixed income at Bank of Singapore, told CNBC's "The Rundown" on Monday.

Chinese Minister Liu Kun stated, "Some regions and companies have been hit (by trade frictions), but China has the ability to minimize the impact".

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