China central bank cuts reserve requirement by half a point

The RRR cut came two days after the closing of the G20 Finance Ministers and Central Bank Governors Meeting in Shanghai, when China’s central bank described its monetary policies as “prudent with a slight easing bias”, a shift away from the simple “prudent” of recent years.

YUAN JITTERS: Chinese authorities guided the tightly controlled yuan sharply lower on Monday morning, in a move that sent the country’s stock markets on another wild downward swing, taking the Shanghai benchmark down as much as 4.4 percent in morning trading. The Nasdaq Composite Index was down 32.52 points, or 0.71 percent, to 4,557.95, Xinhua reported.

The ratio cut will free up an estimated amount of $108 billion worth of funds.

Index gains were led by financials and industrials, and property shares outperformed on signs of rising speculative interest in China’s first-tier cities. “Ambitious growth targets amid weak economic growth mean that monetary policy is called upon to help support growth”. “It should help to support market sentiment in the near term”. “Judging by the initial 2 [percent] spike in the China A50 futures (the largest 50 mainland companies, traded on the Singapore futures exchange) we should see some upside in the Chinese equity markets”. Separately, the central bank provided 35.6 billion yuan worth of pledged supplementary loans, or PSL, to lenders in February. Philip Uglow, chief economist at financial data firm MNI Indicators, said further cuts could lie ahead.

The move brought China’s money rates down across the board on Tuesday.

All 18 euro money-market traders polled by Reuters expect the European Central Bank to cut its deposit rate again at its March 10 meeting, and they said there was an even chance it would also increase its monthly asset purchases.

In late October previous year, Communist Party’s central committee had a policy meeting where it aimed to double the GDP and income within a decade from 2010.

The past several months, however, have conditioned investors to sell stocks as China sells off with vague worries about economic growth in China and potential risks posed by their banking system serving as supposed reasons to sell USA stocks.

The urgent need for action was clear in the latest surveys of manufacturing and services. Contracts to buy previously owned USA homes fell to their lowest level in a year in January, while the Chicago Purchasing Manager Index – a leading indicator of the US economy – contracted to 47.6 in February. The central bank continues to loosen its monetary policy to stimulate the economy.

Chinese shares sank Tuesday after a weak manufacturing reading overshadowed an easing in bank lending while Japan and other Asian markets were mostly higher.

“There is no basis for persistent renminbi depreciation from the perspective of fundamentals”, he said.