Now the People’s Bank of China has stepped in to cut interest rates.
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Global markets rebounded Tuesday after China’s central bank cut its key interest rate to support growth in the world’s second-largest economy.
The language mirrored that of Premier Li Keqiang, who was quoted by state broadcaster CCTV on Tuesday night as telling a visiting Kazakh delegation in Beijing that the global economic situation was complex with “large market fluctuations” which “also had some impact on the Chinese economy“.
The PBoC last week also injected net 260 billion yuan liquidity via 7-day repo and 6-month loans to financial institutions. “Frankly [it] shows a bit of panic in my mind”, said Andrew Polk of the Conference Board in Beijing. Incoming tourism would be affected only in case of a bigger devaluation of the Chinese currency which, however, is unlikely, they said.
It is the fifth interest rate cut since November and will take effect on Wednesday.
The 1-year lending rate has been cut to 4.6 percent, while the deposit rate is now at 1.75 percent after both having been reduced by 25 basis points. The change will be effective on September 6.
China’s currency devaluation, and a near-collapse in its stock market in early summer have sparked fears that the Chinese economy could suffer a hard landing that will hammer world growth and send global markets into a tailspin.
Teck Leng Tan, an analyst with UBS’s wealth management operations, said that although the People’s Bank of China (PBOC), the Chinese central bank, repeatedly said that the recent dramatic depreciation of the yuan against the greenback was a one-time adjustment, the Chinese yuan is likely to move lower in the future.
The 7.0 percent GDP growth figure for the April-June quarter – which matched the government’s official target of “about 7.0 percent” – surprised economists given that various data components during the period had been generally weak. In America shares were up sharply for much of the day before sell orders in the final 15 minutes saw it end 200 points – or 1.3 per cent – down, extending Wall Street’s losing streak to six days. The bloodbath also continued on Tuesday in China and the country’s main stock market fell 7.6 per cent, taking the total erosion in stock market wealth to $1 trillion in the past four days. The way I see it is that this is a bit of a technical correction after things got a bit oversold.
Analysts at the US bank added that the move was expected to trigger a reverse of yesterday’s losses, with dollar and commodities gaining and euro and yen expecting to decline, although the real test would come when the domestic stock market reopens.
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Valentijn van Nieuwenhuijzen, head of multi-asset strategy at NN Investment Partners, agreed Monday’s market moves had gone too far.
