That said, the Chinese stock market was still down another 7.6 percent in Tuesday trading, following Monday’s 8.5 percent plummet which triggered the big selloff worldwide.
Advertisement
The Wall Street Journal reported on Sunday that the PBOC was planning to flood the market with liquidity. The PBOC has intervened to stem losses after the move. Some stabilisation in activity is probably the best case scenario.
“The Chinese authorities were forced into such a position to nearly cause this rally in the market…The move will be taken positively tomorrow but it does suggest, again, that the authorities don’t have control on the market and the economy“. New data since July have called into question its ability to hit that target.
“The economy is still under enormous downward pressure”, Yao Wei, a Paris-based China economist at Societe Generale SA, wrote before the move.
Market watchers will be keen to see a strong rebound that makes up the 500 points lost in Monday’s global sell-off which saw markets from Shanghai to London shedding billions of dollars of value.
But the question for investors is whether the nature and timing of the cuts will deliver a sustained boost to the economy, or further hurt confidence in the Chinese leadership’s economic credentials. That squeezed funds out of China’s financial system.
It also promised to pay close attention to liquidity, or the availability of credit, a possible attempt to ease concern that a recent rise in capital outflows from China might leave less money for lending. It is also the latest sign that China watchers have begun to adopt a murkier outlook than ever for the world’s second-biggest economy, on back of the shock yuan devaluation this month and a raft of downbeat economic figures that have already sent markets reeling at home and overseas. The central bank also lowered the benchmark rate for a one-year loan by 0.25 percentage points to 4.6 percent and the one-year rate for deposits by a similar margin to 1.75 percent.
The PBOC also removed its control over fixed bank deposits with more than one-year maturity.
The three indexes closed lower three days in a row as investors wrestled with uncertainty over increased signs of a slowdown in China’s economy and the timing of a long-expected interest rate hike by the Federal Reserve.
“Frankly, this shows a bit of panic in my mind”, Andrew Polk, resident economist at the Conference Board in Beijing, said of Tuesday’s simultaneous cuts in interest rates and the reserve requirement ratio (RRR) – the second since June.
Advertisement
Chinese official slashed their benchmark lending rate for the fifth time since November and lowered bank reserve requirements.
