China: Monetary easing in perspective – ABN AMRO
|According to Arjen van Dijkhuizen, senior economist at ABN AMRO, the recent monetary easing steps in China are of a smaller scale than the measures taken during the global financial crisis and the episode of China wobbles in 2015-16.
Key Quotes
“The PBOC has left its benchmark policy rate on hold this time, compared to a reduction by 216 bps in 2008-09 and 165 bps in 2014-16. The 350 bp reduction in RRRs for large banks in 2018-19 so far is similar to the 300 bp cuts in 2015-16, but we should add that these measures are partly needed to sterilise the liquidity drain stemming from smaller inflows through the capital account. Hence, these RRR cuts are needed to safeguard liquidity in the banking system and therefore cannot be purely seen as a stimulus measure. That said, the PBoC’s shift has caused a general easing of monetary and lending conditions.”
“The 7-day interbank repo rate has fallen again since mid-2018 after a rise in 2016-17 (although the fall in interbank rates in 2015 was sharper). Last but not least, the PBoC also allowed a relatively sharp CNY depreciation versus USD last year (around 10% in April-October). That partly offset the impact of US import tariffs, although the depreciation was triggered by market forces. Meanwhile, CNY has stabilised in the autumn of 2018 and has regained a bit since the US-China truce agreed by Trump and Xi on 1 December.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.