Will China surprise markets with a surprise cut?

China needs to send a signal to the markets. The Shanghai Composite is down over 23% year-to-date while the Hang Seng is down 14.3%. China needs to ensure confidence in the market as global stock markets continue to slide. The PBOC is no stranger to announcing major policy decisions late in December and during illiquid times.

The People’s Bank of Chin has cut the Reserve Requirement Ratio (RRR) four times already this year (January, April, June and October). They also announced new funding tools in hopes to help economic growth from the restrictions on shadow banking. The targeted tools help policy transmission and avoids adding too much liquidity in the system.

Once we are past the holiday season, trade war negotiations will once again ramp up. We have seen progress between the US and China, but are nowhere near a final deal. This could be the perfect time for a calculated cut by the PBOC. If the PBOC cuts the RRR by 100bps, it would signal that they are going to do their part to prevent the economy from losing even more momentum.

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya