TheÂ Chinese yuan is rebounding atÂ theÂ end ofÂ theÂ trading week, buoyed byÂ theÂ central bankâs recent stimulus measures toÂ stimulate theÂ worldâs second-largest economy asÂ theÂ country tries toÂ return toÂ normal. TheÂ yuan had breached theÂ crucial 7 mark against theÂ US dollar this week, but theÂ currency might recover amid encouraging economic progress.
OnÂ Friday, theÂ Peopleâs Bank ofÂ China (PBoC) announced aÂ $79 billion stimulus push toÂ help theÂ nationâs private sector recover from theÂ Covid-19âs economic fallout. TheÂ PBoC will slash theÂ reserve requirement ratio (RRR) byÂ aÂ range ofÂ 0.5% andÂ 1%, freeing up asÂ much asÂ $78.8 billion inÂ funds that financial institutions can lend toÂ businesses. Officials are signaling that they want these banks toÂ lend toÂ smaller businesses that are having aÂ hard time accessing traditional bank lending.
TheÂ PBoC is also projected toÂ slash its benchmark deposit rate andÂ medium-term lending rate byÂ asÂ much asÂ 25 basis points inÂ theÂ coming months.
It is unclear how much borrowing andÂ spending will be needed toÂ rev up theÂ economy.
This would be inÂ addition toÂ theÂ massive $570 billion stimulus plan that many analysts have been warning about inÂ recent days. TheÂ funds are projected toÂ be allocated toÂ companies with weak cash flows andÂ public infrastructure endeavors. Experts note that Beijing will not accept aÂ gross domestic product (GDP) growth rate ofÂ less than 5%, so it may go beyond theÂ estimated figure if necessary. TheÂ latest forecasts suggest year-on-year growth inÂ theÂ first quarter could plunge toÂ 4%.
TheÂ PBoCâs actions follow other central banksâ initiatives, including theÂ Reserve Bank ofÂ Australiaâs $8.8 billion injection into financial markets andÂ theÂ Federal Reserveâs $1.5 trillion rescue plan.
Qian Wan, anÂ economist forÂ Bloomberg, wrote:
Chinaâs fiscal health is under significant pressure asÂ theÂ coronavirus outbreak reduces government revenue byÂ disrupting economic activity, while expenditure is rising toÂ stimulate demand. TheÂ strain is more evident forÂ local governments that have limited income while taking onÂ anÂ out-sized spending responsibility.
OnÂ theÂ data front, new motor vehicle sales cratered 79% inÂ February, down from theÂ 18.7% contraction inÂ January. Year-to-date foreign direct investment (FDI) tumbled 8.6%. Earlier this week, theÂ February inflation rate came inÂ atÂ 5.2%, theÂ producer price index (PPI) clocked inÂ atÂ -0.4%, andÂ outstanding loan growth climbed 12.1%.
TheÂ USD/CNY currency pair fell 0.3% toÂ 7.0082, from anÂ opening ofÂ 7.0296, atÂ 16:50 GMT onÂ Friday. TheÂ EUR/CNY declined 1.53% toÂ 7.7521, from anÂ opening ofÂ 7.8728.
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