Contrary to expectations after the Chinese central bank – the People's Bank of China – reduced the rates of its Reserve Requirement Ratio (RRR) on Sunday, the Chinese stock markets slumped on Monday significantly.
The Shanghai Composite Index fell by 3% while the country's blue-chip index fell about 3.6%. Meanwhile, the Hang Seng, the Hong Kong stock market also fell by around 0.9%. The fall in the stock market, it is said, was also prompted by the US governmental authorities' report scrutinising that the American hardware had been compromised by the East-Asian country's spies.
This latest report adds another chapter to the currently existing tension between the United States and China. Earlier, this year, the US had imposed duties on the Chinese imports into the country with China retaliating and following suit with duties of its own.
Speaking about the slump of the Chinese stock market and the PBOC's attempts to stabilise the economy, stategists with the Bank of America Merrill Lynch noted, "We expect the PBOC will continue its easing efforts to keep liquidity ample and loosen its credit control to make funds more accessible to the broader economy.
Moreover, there is still room for further RRR cuts when necessary, though the chance for an interest rate cut is limited given the continued Fed rate hiking cycle, in our view." Prior to the PBOC's revisions to the banks' RRR, the bigger banks needed to have a RRR of 15.5% and the smaller banks needed to have about 13.5%.
The People's Bank of China reduced the RRR by around 100 basis points (bps).