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Global Markets Weekly Update

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BM.GE
16.10.18 19:25
828
China decreased the amount of money that commercial banks must put aside at the country’s central bank, a significant move that could release an extra
$175 billion into the economy, as Beijing steps up measures to support growth amid a worsening trade war with the U.S.

The previous weekend, the People’s Bank of China (PBOC) lowered its reserve requirement ratio by 1%, effective October 15. The move marked the PBOC’s
fourth reserve ratio cut this year and will hand mainland banks 1.2 trillion yuan—of which 450 billion is to be used to repay their own borrowings from the
PBOC, the bank said on its site.

The latest rate cut is a fairly sizable reduction that will release a net amount of 750 million yuan into China’s economy, or a little less than 1% of the country’s
gross domestic product, estimate analysts.

Though the PBOC’s rate cut should boost domestic activity, it will also likely renew downward pressure on the yuan, whose recent weakness has drawn the ire
of the Trump administration. On Friday, U.S. Treasury Secretary Steven Mnuchin reiterated concern about the yuan’s weakness and said that exchange rates
would have to be part of bilateral trade talks.

The yuan’s steady deprecation this year has increased bets that the currency will soon break the psychologically key exchange rate of 7 yuan per U.S.
dollar—something that hasn’t happened since the global financial crisis. Traders believe that despite U.S. charges of currency manipulation, the PBOC is going
out of its way to manage expectations and doesn’t want to see a speculative buildup of selling pressure on the yuan.