China’s double-barreled move on Tuesday to cut benchmark rates and banks’ reserve requirement ratio (RRR) shows the central bank will tolerate further depreciation in the renminbi, economists say.
The 0.25 percent cut in interest rates will hasten capital outflow from the country, piling pressure on the weakening currency, the Hong Kong Economic Journal reports, citing Zhu Haibin, chief China economist of JPMorgan Chase & Co.
Zhu said the decision signals that the central bank is comfortable with a modest renminbi depreciation.
Liao Qun, chief economist of CITIC Bank International Ltd., said the move likely came from concern a delayed devaluation could further weigh on the real economy and the stock market.
Authorities can leverage the country’s massive foreign exchange reserves to manage the pace of the depreciation, Liao said.
Tao Dong, managing director and chief economist for non-Japan Asia of Credit Suisse, said the double act was aimed at stemming a slump in the stock market by injecting more liquidity.
Meanwhile, Goldman Sachs expects another two rounds of RRR cuts this year, coupled with increased fiscal and administrative support.
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