Yuan Advances Most in Three Weeks as PBOC Raises Reference Rate

To try to stop the rout, China’s central bank cut its deposit reserve requirement ratio by 50 basis points, to 17 percent, in an effort to free up about $100 billion in new credit for the world’s second-largest economy. Injections of money liquidity into the economy might potentially trigger a liftoff in overall growth, as well as a moderate increase in oil and industrial metals prices, which mainland China is a huge consumer of.

Many countries are now concerned about an escalation of the currency war among major exporting economies, especially as China is attempting to devalue its currency to boost its exports, which would throw the global financial market into turmoil, something that the latest G-20 meeting was trying to prevent.

This announcement follows closely on from the announcement in July 2015 which permitted foreign central banks, sovereign wealth funds and global financial organisations to, upon registration with the PBOC, trade domestic bonds, interest rate swaps and repurchase agreements more easily.

The move, which came as a surprise to many investors, would stabilise the Chinese financial system, said Duncan Innes-Ker of the Economist Intelligence Unit. Separately, the central bank provided 35.6 billion yuan worth of pledged supplementary loans, or PSL, to lenders in February.

In Europe, German benchmark DAX index at Frankfurt Stock Exchange inched down 0.19 percent, while French benchmark index CAC 40 rose 0.90 percent.

The PBoC fixed the yuan at 6.5452 per dollar, down 0.17pc from Friday and the lowest since the start of the month.

“You could welcome the easing as supportive of growth and indicative of less pressure from capital outflows, or you could see it as a reflection of even greater weakness than expected”, Callow added. “The RRR cut is beneficial for the housing market across the board but the effect may be felt sooner in tier-1 cities than in lower-tier cities”, said Alan Jin, property analyst at Mizuho Securities.

The official manufacturing purchasing managers index dropped to 49 in February, missing the median estimate and falling to the weakest since January 2009.

A confluence of factors, ranging from signs of increasing tightness in the money market, steep losses in equities which took stock bourses down to fresh 15-month lows on Monday and this week’s annual political events – the China People’s Political Consultative Conference (CPPCC) and the National People’s Congress (NPC). The meeting was also attended by governors of central banks. Mr. Zhou however said in the G20 summit that there is no basis for doggedness decline of the Chinese Yuan.

ChiNext, the start-up index that tracks high-tech and innovative companies listed in Shenzhen, sank by 6.69 percent to its lowest level since September.

“The Irish bond market reaction has been remarkably muted”, said Brenda Kelly, head analyst at traders London Capital Group, noting however that this could be more down to expected stimulus by the European Central Bank “than any real confidence” in Irish politics. “Today’s move matters in terms of what it signals about the policy direction”, said Mr Kuijs, who formerly worked at the World Bank and International Monetary Fund.