Quite a few people seem desperate for this to be the financial armageddon they've been predicting for, it seems like, forever. Well, there's a vested interest I'm sure but should their longed-for meltdown actually occur, I wonder how many of those Jeremiahs would remain unaffected....Wei Yao at Soc Gen has been crunching the numbers and calculates that today's reserve ratio easing will inject around $107bn into the economy. However, this may not be enough to fully offset the hundreds of billions Beijing has been using to prop up the value of the renminbi since August 11.
The PBOC now faces a difficult balancing act where it seeks to counter-act tighter policy as dictated by its foreign exchange regime with the need to keep the economy motoring along.
More from Wei: "The battle to stabilize the currency has had a significant tightening effect on domestic liquidity conditions. It is the PBoC's decision whether or not to keep at it. If the PBoC wants to stabilize currency expectations for good, there are only two ways to achieve this: complete FX flexibility or zero FX flexibility. At present, the latter is also increasingly unviable, since the capital account is much more open. Therefore, the PBoC has merely to keep selling FX reserves until it lets go. "In a nutshell, the PBoC’s war chest is sizeable no doubt, but not unlimited. It is not a good idea to keep at this battle of currency stabilization for too long." ...The ECB's Vitor Constancio has been speaking in Germany today and has dampened anxiety over a major economic slowdown in China.
Despite downside risks to inflation coming from falling oil prices, Mr Constancio said the ECB stood ready "to use all the instruments available within its mandate to respond to any material change to the outlook for price stability”. ... China won't intervene to support stocks again? Do you seriously expect anyone to believe this? They've just authorized the party apparatchiks of the Chinese National Pension Fund to spend up to 30% of their assets on shares. Are we expected to have forgotten that? That's $100 billion of possible buying orders coming down the road.
When these apparatchiks are told to buy, they'll buy, and buy again - as if their jobs depend on it, as they do.
When these apparatchiks are told to buy, they'll buy, and buy again - as if their jobs depend on it, as they do.
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