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Chinese Yuan Rebounds on Expected Stimulus, Cut in Tariffs

February 6, 2020 at 15:07 by Andrew Moran

Chinese 100-yuan notesThe Chinese yuan is rebounding on Thursday as reports suggest that the central bank will unleash additional stimulus to contain the Wuhan coronavirus’ impact on the world’s second-largest economy. While the death toll and number of confirmed cases have risen in China, global financial markets believe that the outbreak is waning. These reports come as Beijing is set to cut tariffs on US goods and report crucial trade data on Friday.

According to Reuters, the People’s Bank of China (PBoC) could announce that it is reducing the reserve requirement ratio (RRR), which would be the second time in about a month. The central bank has cut the requirement financial institutions are required to hold by a dozen times over the last year to encourage banks to encourage greater lending.

A monetary policy insider told the newswire:

Currently, monetary policy is being loosened, but the central bank will follow a step-by-step approach and watch the virus situation.

We have policy reserves and will step up policy support for the economy. The most urgent task is to put the virus outbreak under control.

There could be a fiscal push, too. The federal government is mulling over raising the annual budget deficit relative ratio from 2.8% last year to 3% in 2020. Beijing might also permit local governments to issue more debt to fund infrastructure projects.

Earlier this week, the regulators urged banks to increase their lending programs and refrain from calling in debts on borrowers residing in areas deeply affected by the coronavirus. The PBoC also injected more than $242 billion in liquidity this week to cushion stocks through open market operations. The move calmed Asian and North American equities markets. It also plans to implement 30 additional stimulus tools to ensure China can weather the economic storm caused by the virus.

The Ministry of Finance announced on Thursday that China will slash tariffs in half on $75 billion of US imports beginning next week. According to a statement, 10% tariffs will be lowered to 5% and the separate 5% levy will be reduced to 2.5%; these retaliatory taxes have been in place since September. The purpose is “to promote the healthy and stable development of Sino-US economic and trade relations.”

On the data front, China will release its trade data and analysts anticipate a surge in imports and exports for January.

The USD/CNY currency pair tumbled 0.07% to 6.9686, from an opening of 6.9737, at 12:56 GMT on Friday. The EUR/CNY slipped 0.07% to 7.6623, from an opening of 7.6679.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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