China must take strong stimulus measures to support growth - state media

China must take strong stimulus measures to support growth - state media

The Central Bank of China declared on Sunday that it was clipping the reserve requirement ratios (RRRs) by one percentage point from 15 October to lower the financing costs and encourage growth in the world's second-largest economy.

"A cut of 1 per cent by the Chinese central bank was unexpected because it would "release something like 700 billion yuan (approximately $101.72 billion)" into the country's banking system", Francis Lun, the CEO of Geo Securities, said.

News also emerged over the weekend that China's central bank would cut the required reserve ratio for Chinese banks by 1%.

China's yuan currency has faced strong selling pressure in 2018, losing more than 8% in March-August at the height of market worries, though it has since cut losses as authorities stepped up support.

Weakening exports were already a drag on growth in the first half of the year after giving an added boost to the economy last year, highlighting the need for sustained strength in domestic demand if significant new US tariffs are imposed.

China has retaliated with its own set of tariffs, and has accused the United States of launching the largest trade war in economic history.

The move will see 750bn yuan ($109bn) in cash injected into the financial system.

Nobel Prize in economics awarded to William Nordhaus and Paul Romer
He was chief economist at the World Bank from 2016 to 2018, and is credited with the quote "A crisis is a bad thing to waste". Two researchers at American universities have been awarded the 2018 Nobel Prize for Economics.

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.

The global rate, which is not governed by the central bank, also slipped to 321 basis points to an 18 month low of 6.9135. "The PBOC is expected to leave its 7-day reverse repo yield unchanged at 2.55 percent akin to Fed's meeting in June, given PBOC's easing bias", Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong, said in a note.

Friday's US 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.

The RRR cut would not create depreciation pressure on the yuan, the PBOC said, adding it would keep the foreign exchange markets stable.

Tourism spending by domestic travellers in the first four days of the National Day holiday, which ended on Sunday, rose just 8.1% from previous year, which is much less than the 21% growth recorded in 2017, according to figures from the China Tourism Academy. However, some key activities have abated more steeply. The government is aiming to help small and mid-size businesses in particular, which have had trouble obtaining loans and face other rising pressures.

Chinese commission and state council have also substituted the term "deleveraging" with "structural deleveraging", a swap indicating less stringent on debt. "The external environment is becoming tougher and we can not rule out further RRR cuts".

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