Investors on Monday had been reacting to the latest stock market rout in China.
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As a result, buying the yuan with borrowed euros would have lost about 7 per cent since the devaluation and 3 per cent using dollars, after gaining an average 4 percent annually over the previous four years, data compiled by Bloomberg show.
Liu said the RRR cut was the most significant element of the PBOC action, as it would inject 650 billion yuan ($101 billion), into the economy and ease concerns of a “hard landing”.
“If problems on China’s financial markets and real economy deepen, and the authorities fail to contain the situation, a full-blown financial and economic crash in China could ensue”, said Christophe Donay, chief strategist at Pictet Wealth Management.
German Finance Minister Wolfgang Schaeuble said the situation in China would be discussed by G20 nations.
This move follows another 7.6% drop in the SSE Composite in Shanghai, down to 2,964.97.
Chinese experts are arguing that the stock market fluctuations are marginal to the real economy in the country, and that the stock market transactions account for only seven per cent of the Chinese wealth.
Zhang Yanbing, an analyst from Zheshang Securities, said the central bank’s cuts had tamed the “panic sentiment” that had gripped Shanghai, but warned: “There will still be fluctuations as views towards the market’s prospects are divided”.
It comes as pessimism about the state of the country’s broader economy is intensifying, forming a lethal combination that has sent global markets into a tailspin. “It is not unusual to see bubbles burst in particular markets and for there to be some flow-on effect in other stock markets, but the fundamentals are sound”.
People watch Indian stock market indices on a display screen on the facade of the Bombay Stock Exchange (BSE) building in Mumbai, India, Tuesday, August 25, 2015. China stock futures rallied after the PBOC’s announcement.
While it wasn’t clear to central committee, it was clear to all the other market participants. The key to market stability is a more stable economy, albeit one with lower growth.
The People’s Bank of China isn’t the first central bank whose policy decisions upset the carry trade this year.
China’s ruling Communist Party and government are now devoting much of their attention to a massive military parade next week to commemorate the 70th anniversary of Japan’s defeat in World War II, mobilising hundreds of thousands of Beijing’s citizens in preparation. Unfortunately, these moves appear to fall far short of curing the disease afflicting the Chinese economy-they focus on treating symptoms instead.
Growth in China’s gross domestic product (GDP) recorded its worst performance in almost a quarter century past year, expanding 7.4 percent.
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It added that one of the difficulties China faces in its rise, nevertheless, is mounting global pressure – nearly in every aspect.
