China’s central bank, which helped trigger a market rout with a surprise devaluation two weeks ago, may be the only one around the world with the firepower to arrest it.
With about 25 trillion yuan ($3.9 trillion) of bank deposits still locked up as reserves and the benchmark one-year interest rate at 4.85 percent, the People’s Bank of China has an ample monetary policy arsenal at its disposal. Lending rates in the U.S., Europe and Japan already are close to zero and the rout is shaking confidence that the global economy will be strong enough to withstand an expected policy tightening by the Federal Reserve.
More than $5 trillion has been erased from the value of stocks worldwide since the devaluation of the yuan on Aug. 11, which deepened concerns over a malaise in the world’s second-biggest economy. A global sell-off in riskier assets quickened Monday as commodity prices sank to a 16-year low and emerging market currencies weakened. Chinese stocks plunged the most since 2007.