Stocks surged Tuesday morning on Wall Street, erasing some of the heavy losses of a day earlier, after China cut interest rates to try to boost the world’s second-largest economy.
Advertisement
The cuts followed a shock devaluation in the yuan two weeks ago, a move authorities billed as aiding financial reforms, but which some saw as the start of a gradual slide in the currency to help Chinese exporters.
Andrew Polk, a senior economist at the Conference Board, an economics consultancy, said the PBoC had thrown “everything but the kitchen sink” at the crisis.
China’s interest rate cuts will not be enough to ease concerns about the country’s economy, says Kamel Mellahi, professor at Warwick Business School in Britain.
The benchmark one-year lending rate was cut to 4.6 percent and the deposit rate was slashed to 1.75 percent.
It also increased the amount of money available for lending by reducing the minimum reserves banks are required to hold by 0.5%.
China’s banking reserve requirement ratio (RRR) has been cut by 0.5 percentage points. It also pointed to the recent big selloffs in global markets, which the central bank said contributed to the need for the PBOC to deploy a variety of monetary-policy tools to ensure steady growth in China’s economy.
Fidelity Worldwide Investment global economist Anna Stupnytska says the current state of the economy is “certainly not consistent with this year’s growth target” as well as not being consistent with the labour market stability.
China’s economy grew an annual 7 per cent in the second quarter, steady with the previous quarter and slightly better than analysts’ forecasts, though further stimulus is still expected.
The FTSE Index bounced back above the 6,000 mark after surging by almost 2% as it recovered following one of its worst sessions in recent years.
China’s stock index futures and European equities rose.
“It is not unusual to see stock market corrections”.
The NZ dollar has tumbled, stock markets are sliding around the world, but what does it all mean? “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”.
As I reported yesterday, Augusts past have been littered with spasms in markets because trading volumes are usually thin as many investors (and their advisors) are away on holiday.
Advertisement
China’s foreign exchange reserves will drop by some US$40 billion a month for the rest of this year, according to the median of 28 estimates in a Bloomberg survey this month.
