China cuts rates, markets are toasting. Part of the Chinese way to Quantitative Easing – Il Sole 24 Ore

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This entry was posted on August 25, 2015 at 15:32.
The last change is the August 25, 2015 at 16:12.

BEIJING – One, two and three. China’s central bank after Black Monday in the financial markets has moved on three fronts: by injecting liquidity in the market by cutting rates by using monetary and monetary instruments flexible. A rapid response, immediate with which part, in fact, the Chinese way to Quantitative easing. The stock exchanges around the world seem to believe it. And toast, with strong gains generalized.

The People’s Bank of China (PBOC), China’s central bank, today has tried everything to try to curb the fall in price lists, with the Shanghai Composite dive by 7.6% and after the collapse Yesterday’s devastating 8.5, destined to go down in history as the Black monday Chinese. Succeeding, but only closing price lists.

He injected (in vain) in the morning more funds through operations on the open market but then raised the bar by cutting – markets are closed and in combination – the rates and bank reserve ratios. The Central Bank has therefore reduced the lending and deposit rates for one year by 25 basis points each to 4.6 percent and 1.75 percent, respectively.

In the morning the governor had auctioned 150 billion yuan (23.4 billion dollars) in repurchase agreements to seven days, but the measure had no effect on the progress of negotiations, extremely negative for the square Chinese. The PBOC has also sold 60 billion yuan of deposits of three-month Treasury on behalf of the Ministry of Finance to 3 percent, the lowest since 2010, while others will auction 60 billion yuan, on 28 August.

The move together to cut rates and ratios, however, has had a positive effect. China’s foreign exchange reserves, as a result, will drop by about 40 billion dollars a month for the rest of this year. This changed when the central bank announced it was cutting rates by 25 basis points to 4.6 percent, cutting one-year benchmark deposit rate by the same amount, and reducing ratios of 50 points according to 18 percent apply to most of the major banks.

This time, the government seems to have recovered after the debut on Monday, focusing on a maneuver which is to promote economic fundamentals rather that to revitalize the stock market itself.

While the leadership takes over the situation the Premier Li Keqiang has pointed out that for the moment there is no need of other moves to devalue the yuan. The maneuver of August 11 has already proved, for Beijing, a real boomerang.

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