China slashes banks' reserve requirements as USA trade war imperils growth

China slashes banks' reserve requirements as USA trade war imperils growth

China slashes banks' reserve requirements as USA trade war imperils growth

The country's central bank, People's Bank Of China (PBOC), said it would cut the reserve requirement ratio by one percentage point from October 15 to make sure there is reasonable supply of credit for economic development.

China's central bank will cut the reserve requirement ratios (RRR) by one per cent from October 15 which will inject a net Dollars 109.2 billion in cash into the banking system. That said, amid a worsening trade-war outlook, negative sentiment around China's economy and a surging US dollar could yet test the nation's defenses.

The ongoing trade war with the us has exerted great pressure on Chinese exports as rounds of retaliatory tariffs undercut China's price advantage.

The United States, Europe and other trading partners say initiatives such as "Made in China 2025", which calls for state-led creation of champions in robotics and other fields, violate Beijing's obligations to open up its market to foreign companies.

China promised Tuesday not to weaken its currency to boost exports during a tariff fight with Washington and rejected USA concern about the yuan's sagging exchange rate as groundless and irresponsible.

The yuan was expected to gain around 1.7 percent to 6.80 per dollar in a year's time from around 6.92 now, according to the poll of over 50 foreign exchange strategists. Richard Jerram, chief economist at Bank of Singapore, said while the Fed would not be panicked by the increase in wages "evidence that tight capacity conditions-such as a low unemployment rate-are pushing prices higher will keep them on the current tightening path". -China trade war on China's growth, while the dollar gained against the euro as Italian bond yields spiked on a brewing spat over Italy's budget plans.


"Some regions and companies have been hit [by trade frictions], but China has the ability to minimize the impact", Mr. Liu was quoted as saying.

The stock market declined Monday taking its cue on Asian trading, as another strong United States jobs reading further fanned expectations the Federal Reserve will hike interest rates at a quicker pace.

"The risk of further Chinese yuan depreciation comes not so much from the tariff war turning into a currency war, but more from Beijing's policy responses to cushion the economy", Philip Wee, an FX strategist at DBS Bank, wrote in a note.

China's economic growth rate slowed to 6.7% in the second quarter YoY but still remains above the targeted 6.5%. However, it has since stabilized with the PBoC increasing liquidity support and maintaining ample liquidity. But some key activity indicators have weakened more sharply. The July nationwide jobless rate rose to 5.1 per cent.

The Chinese banking regulator has requested banks to lower funding costs significantly and raise their lenience for non-performing ratios to small and micro firms. "The key question is how to channel cash to the real economy", said Zhang Yiping, senior economist at Merchants Securities in Shenzhen.

"After today's announcement in the RRR cut, we expect a further cut in January 2019".

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