Chinese Yuan Rebounds As PBoC Unveils Additional Stimulus Measures

The  Chinese yuan is rebounding at  the  end of  the  trading week, buoyed by  the  central bank’s recent stimulus measures to  stimulate the  world’s second-largest economy as  the  country tries to  return to  normal. The  yuan had breached the  crucial 7 mark against the  US dollar this week, but the  currency might recover amid encouraging economic progress.

On  Friday, the  People’s Bank of  China (PBoC) announced a  $79 billion stimulus push to  help the  nation’s private sector recover from the  Covid-19’s economic fallout. The  PBoC will slash the  reserve requirement ratio (RRR) by  a  range of  0.5% and  1%, freeing up as  much as  $78.8 billion in  funds that financial institutions can lend to  businesses. Officials are signaling that they want these banks to  lend to  smaller businesses that are having a  hard time accessing traditional bank lending.
The  PBoC is also projected to  slash its benchmark deposit rate and  medium-term lending rate by  as  much as  25 basis points in  the  coming months.
It is unclear how much borrowing and  spending will be needed to  rev up the  economy.
This would be in  addition to  the  massive $570 billion stimulus plan that many analysts have been warning about in  recent days. The  funds are projected to  be allocated to  companies with weak cash flows and  public infrastructure endeavors. Experts note that Beijing will not accept a  gross domestic product (GDP) growth rate of  less than 5%, so it may go beyond the  estimated figure if necessary. The  latest forecasts suggest year-on-year growth in  the  first quarter could plunge to  4%.
The  PBoC’s actions follow other central banks’ initiatives, including the  Reserve Bank of  Australia’s $8.8 billion injection into financial markets and  the  Federal Reserve’s $1.5 trillion rescue plan.
Qian Wan, an  economist for  Bloomberg, wrote:

China’s fiscal health is under significant pressure as  the  coronavirus outbreak reduces government revenue by  disrupting economic activity, while expenditure is rising to  stimulate demand. The  strain is more evident for  local governments that have limited income while taking on  an  out-sized spending responsibility.

On  the  data front, new motor vehicle sales cratered 79% in  February, down from the  18.7% contraction in  January. Year-to-date foreign direct investment (FDI) tumbled 8.6%. Earlier this week, the  February inflation rate came in  at  5.2%, the  producer price index (PPI) clocked in  at  -0.4%, and  outstanding loan growth climbed 12.1%.
The  USD/CNY currency pair fell 0.3% to  7.0082, from an  opening of  7.0296, at  16:50 GMT on  Friday. The  EUR/CNY declined 1.53% to  7.7521, from an  opening of  7.8728.

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