China moves to boost liquidity amid US trade war

Fred Dufour  AFP  Getty Images

Fred Dufour AFP Getty Images

But Nicholson noted that if the trade situation deteriorates further, China will have a number of levers to save its economy because President Xi Jinping has "political capital".

The onshore yuan tumbled to a 19-month low against the U.S. dollar on Monday.

It is the fourth time the country's central bank has cut its reserve requirement this year.

"The PBOC will continue to take necessary measures to stabilize market expectations and keep the foreign exchange market running smoothly", it said.

"The RRR cut announced today sends a clear easing signal", Bank of America Merrill Lynch said in a research note. China is reluctant to ease policy via a policy rate cut to avoid fuelling any increase in leverage and therefore continues to embark on targeted easing in the form of RRR cuts.

The move comes as officials have warned that trade frictions with the United States could shave as much as almost one percentage point from China's annual economic growth.

Will RRR cut push the dollar-yuan exchange rate to beyond 7? One economist said the move was "not really a surprise".

The announcement of the relaxing the RRR requirement for the banks, which are also saddled with the huge local government debt of Dollars 2.58 trillion comes amid deepening trade war with US and raising of the interest rates by US Federal Reserve, intensifying the pressure on capital outflows.

"We've been expecting for some time now the USA market to start delivering volatility".

USA and Chinese naval ships had a close encounter at sea, and speculation that the United States could further hike interest rates rattled emerging markets.

To assess China's economic situation, one must take a longer view and a more holistic approach, Ning Jizhe, vice chairman of China's state planner, told the People's Daily in an interview, stressing that growth, employment, prices and worldwide balance of payments have been stable.

The dollar index, which tracks the greenback against a basket of six major rivals, was flat at 95.617. The global dollar index rose to 94.143 from the previous close of 94.133. Before trading began on Monday, the PBOC set the midpoint of the yuan's daily trading band at 6.8957 per dollar, its weakest level since May 11, 2017. Retail sales this year have grown at the slowest rate in a decade. The yuan weakened as much as 0.5 per cent.

The stock market declined Monday taking its cue on Asian trading, as another strong U.S. jobs reading further fanned expectations the Federal Reserve will hike interest rates at a quicker pace. The report, which followed a slew of strong indicators on the world's top economy, saw yields on benchmark 10-year Treasuries rise for the third straight day, hitting a fresh seven-year high with the Fed expected to stick to its rate hike drive. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 6.8697 0.01% * Offshore 6.9523 -1.37% non-deliverable forwards **Premium for offshore spot over onshore **Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint.

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