Investors React to China’s Broad Rate Cuts, According to Reuters

China’s central bank has announced a reduction in banks’ reserve requirement ratio by 50 basis points and plans to lower key interest rates in an effort to stimulate a recovery in the economy, according to Governor Pan Gongsheng. During a news conference on Tuesday, Pan stated that the seven-day repo rate will be decreased by 0.2 percentage points to 1.5%, with expectations of a decline in deposit and other interest rates as well.

The announcement had a positive impact on the market, with broader gains in Chinese stocks and bonds. The CSI300 blue-chip index saw an increase of approximately 1%, while 30-year treasury futures for December delivery reached a record high.

Economist Lynn Song from ING’s Hong Kong office noted that the measures taken are a significant step forward, as multiple actions were announced simultaneously rather than being implemented in a piecemeal fashion. She expressed optimism for further easing in the upcoming months, particularly if accompanied by substantial fiscal policies, which could enhance economic momentum by the fourth quarter.

Christopher Ying, a fund manager at Shanghai Jucheng Asset Management, viewed the policy announcement as aligning with expectations. He emphasized that reducing the reserve requirement and benchmark lending rates would inject more liquidity into the economy. Cutting interest rates on existing mortgages could alleviate household debt burdens and encourage consumer spending. However, he cautioned that sustaining a stock market rally would require stronger policies, including stricter measures against fraud and enhanced support from state-backed funds.

Tony Sycamore, an analyst at IG in Sydney, described the easing measures as broad-based. He predicted that once the Reserve Bank of Australia (RBA) concludes its meeting, a rally could occur in the Australian dollar, particularly benefiting major mining stocks.

Khoon Goh, head of Asia research at ANZ in Singapore, expressed a positive view on market reactions. He noted that while there was anticipation surrounding potential stimulus measures, the package of measures exceeded market expectations. Goh highlighted the significance of new monetary policy tools aimed at supporting equity markets and observed the comprehensive approach adopted by different financial regulators.

Gary Ng, a senior economist for Natixis in Hong Kong, remarked that the timing of the measures might be late but is still beneficial. He emphasized the need for a lower interest rate environment to boost consumer and business confidence in light of poor sentiment and a stagnant property market. Ng suggested that adjustments to regulation will be necessary beyond fiscal and monetary policies to effectively reboot the economy.

Kelvin Wong, a senior markets analyst at OANDA in Singapore, noted mixed reactions to the announcements. While stock markets reacted positively, oil prices did not exhibit the same enthusiasm. Wong expressed concerns about a potential “liquidity trap,” where accommodative monetary policies are not supported by expansive fiscal measures, leading to insufficient internal demand and ongoing low consumer confidence in China.