Yuan may rise above a tsunami of China rate cuts
Sept 24 (Reuters) -The yuan is rising modestly, defying rate-cut pressures, in the wake of a package of major economic stimulus announced by China on Tuesday. A strong risk-on effect in Chinese stocks could buffer it against headwinds from lower interest rates.
The People's Bank of China, in a joint press conference with top regulators, announced that banks' reserve requirement ratios will be cut by 50 basis points. The seven-day reverse repo rate will also be cut by 20 bps; it was last reduced by 10 bps in July.
The central bank also said the medium-term lending facility rate will be lowered by 30 bps, while benchmarkloan prime rates, which were unexpectedlyheld steady last Friday, will be trimmed by 20-25 bps.
Markets had been anticipating monetary easing, but expectations were low due to repeated policy disappointments from Beijing. The comprehensive package announced Tuesday could quell negative sentiment that China won't do enough to revive the economy.
Additionally, the PBOC expectsexisting mortgage rates to be lowered by about50 bps, reducing household interest payments by approximately 150 billion yuan. Down-paymentsfor second homes will be reduced to 15% andunified with thosefor first homes.
In a third wave of stimulus announcements, aimed at the stock market, the securities regulator said it will encourage medium and long-term funds to enter the market, while promoting mergers and acquisitions. The Shanghai composite index jumped 1.8%, while Hong Kong'sHang Seng soared 2.4%.
Beijing seems determined to prove that it is not too late to achieve its 5% GDPtarget for 2024; yuan bears now have to grapple with that.
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Ewen Chew is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai
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