China goes the long handle on stimulus
China has traditionally responded to economic weakness with interest rate cuts, Reserve Requirement Ratio (RRR) cuts or announcements of stimulus. These more recently have been notably absent, either indicating a lack of faith in these measures or that they are being saved for something far more serious. A disturbing trend that has emerged in the past few months is capital outflows from China, which has the effect of tightening monetary policy domestically. Not only do the PBoC and the broader leadership have to worry about growth concerns, but now there is an effect that is tightening policy, working against them. It comes as little surprise then that the PBoC lifted the daily fixing and triggered a devaluation of the Renminbi by 1.8%, the biggest one day move since 2005. They have now doubled down, devaluing by a further 1.6%. A few thoughts. Firstly, this increases the competitive pressure to devalue in the region and forces the other countries to do more. MORE: (VIEW LINK)
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