Published: Fri, October 12, 2018
Money | By Ethel Goodwin

China should prepare ‘more powerful’ steps to support economy - state media

China should prepare ‘more powerful’ steps to support economy - state media

China's central bank on Sunday announced a steep cut in the level of cash that banks must hold as reserves, stepping up moves to lower financing costs and spur growth amid concerns over the economic drag from an escalating trade dispute with the United States. "The narrowing interest rate differentials between China and the U.S. will exert more downward pressure on the RMB", wrote Nathan Chow, strategist at DBS Group Research.

Sixteen strategists see the yuan weakening to 7 to the dollar or higher at some point over the 12-month period, the highest number of respondents in the Reuters poll predicting that since August 2017.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.3 percent, after major stock markets around the world fell for a second straight day on Friday.

"Although we face relatively large external uncertainties, the Chinese economy has the ability to accommodate and fend off external risks", the statement said. Any decline in foreign exchange reserves has been limited as reflected in the latest FX reserves data, which revealed that FX reserves dropped by $22.7bn only in September, suggesting that as yet there have not been significant capital outflows (ie panic) from China and limited need for FX intervention to support the CNY. On Friday, Chinese technology stocks listed in Hong Kong, including Lenovo and ZTE, slumped on a media report that the systems of multiple USA companies had been compromised by malicious computer chips inserted by Chinese spies. The gauges followed Hong Kong's Hang Seng index, which remained open during the holiday and slid 4.38 percent over its course.

A US official told reporters in Washington the Trump administration is concerned about the weakening yuan.

China's attempts to increase policy support come at a time of rising external pressure due to the trade war, and as higher USA interest rates weigh on China's currency and constrain Beijing's ability to loosen policy to support growth. There is room for further reductions and I expect another 1 percentage point cut by the year-end,"Mr. Xu added". The blue-chip CSI300 index, which also fell briefly into negative territory, was up 0.3 per cent. "Cutting RRR at a time of relatively ample liquidity in the banking system is not likely to have much effect", wrote Zhao Jian, a finance professor of the University of Jinan.

Oil prices fell more than 1 percent after the US said it may grant waivers to sanctions against Iran's oil exports next month, and as Saudi Arabia was said to be replacing any potential shortfall from Iran. Investors have been turning to regional markets for trading clues after a weeklong holiday, as global stocks have been battered by a liquidity squeeze amid rising US Treasury yields.

"The trade war's impact on the economy is showing".

In currency markets, the dollar was 0.1 percent stronger against the yen at 113.83, while the euro was 0.1 percent weaker against the dollar at US$1.1512.

USA crude dipped 0.48 percent at $73.98 a barrel.

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