China’s yuan, stocks tumble on worries about economic slowdown, even as central bank acts to encourage more lending
China’s central bank acts to encourage more lending. Although it was already priced into the market, the move was bigger than expected, amid signs of slowing manufacturing and more anti-China rhetoric out of the US.
China’s stocks and currency slumped on Monday because of mounting concerns about the country’s economy, even as the country’s central bank moved over the weekend to free up more money and encourage banks to lend.
Market trading got back under way following a weeklong public holiday. That meant some of the weakness might have been China’s currency and stock markets catching up with declines seen in other Asian markets due to the strength of the US dollar and treasury yields in the past week.
The People’s Bank of China’s move over the weekend to reduce how much cash lenders must hold as reserves -- the so-called reserve requirement ratio (RRR) -- came as challenges to the economy grow, including fallout from the US-China trade war. Analysts estimate the step could pump about $175 billion into the economy, especially to small to medium size businesses.
Onshore yuan, traded on the mainland, slid 0.82 per cent to 6.9253 against the US dollar, marking the biggest daily decline since July 19. The central bank lowered the daily yuan reference rate to a five-month low of 6.8957. Traders are allowed to trade 2 per cent up or down from the reference point.
The central bank’s RRR cut was its fourth since September 2017. For some banks, it was a reduction of 100 basis points, meaning they would need to keep reserves in a range of 12.5 per cent to 14.5 per cent, depending on the bank. While the cut was already priced into market, the PBOC’s action was bigger than expected. That was likely in part due to signs of slowing manufacturing and harsher anti-China rhetoric out of the US, analysts said.
