China's RRR cut will add RMB 750 bln into the economy

China's RRR cut will add RMB 750 bln into the economy”

In an attempt to shore off potential issues at home, China will cut the amount of cash banks must hold in reserve as part of its efforts to support its economy.

The central bank said Sunday it had released 750 billion yuan ($109 billion) for additional lending by reducing bank reserve requirements by 1 per cent.

The cut will fill in the liquidity gap of banks and put no downward pressure on the yuan, the central bank said in a statement, as the country's monetary policy has not been eased.

With the full impact of US trade tariffs still to be felt and China's economy waning, policymakers are changing their urgencies to reduce risks to growth, with the stock markets and yuan under pressure. That said, amid a worsening trade-war outlook, negative sentiment around China's economy and a surging USA dollar could yet test the nation's defenses. China aims to expand its economy by around 6.5 percent in 2018. The move hopes to reduce financing costs and spur growth amid growing concerns over a potential economic slowdown resulting from the trade war between the us and China.

Foreigners dumped a net 9.7 billion yuan (S$1.96 billion) of A-shares through exchange links with Hong Kong on Monday (Oct 8), just short of a record hit eight months ago, as mainland markets re-opened after the week-long break.

China has struck back with its very own arrangement of taxes and has blamed the United States for propelling the biggest exchange war in monetary history. He also assured that the government has implemented measures to help the companies affected by the trade war.

It was trading at 6.9170 per dollar at 0404 GMT, 0.17 per cent firmer than Monday's close of 6.9285 despite the central bank setting a weaker midpoint for the yuan's daily trading band. "Cutting RRR at a time of relatively ample liquidity in the banking system is not likely to have much effect", wrote Zhao Jian, a finance professor of the University of Jinan. Other market observers, however, said the cuts were bigger than expected.

"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 United States rate hikes would help strengthen the dollar further.

China's economic growth rate slowed slightly to 6.7 per cent in the second quarter year-on-year, still well above the government's full-year target of around 6.5 per cent. However, some key activities have abated more steeply. The July nationwide jobless rate rose to 5.1 per cent.

China's Politburo and State Council have also replaced use of the term "deleveraging" with "structural deleveraging", a change that suggests less harsh curbs on debt. "The key question is how to channel cash to the real economy", said Zhang Yiping, senior economist at Merchants Securities in Shenzhen. "Another rate hike in December seems very likely, and we expect four more in 2019".

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