Surprise or something we should have been waiting for

China Ease Monetary policy

By: Ahura Chalki

Market analyst – IFC Markets

Like several months ago, when China was the first economy to return to pre-pandemic levels, they are now planning to be the first economy that wants to get back to more dovish policy. 

According to the Reuters report, with signs of cooling of the economy, the People’s Bank of China said it would cut bank’s reserve requirement ratio (RRR) by 0.5% percentage point, mainly to support the bank lending to small and medium-sized enterprises.

The latest purchasing managers indexes from both the Manufacturing and Service sector and retail sales data showed that the economic recovery pace is slowing and mostly happened with slower domestic demand. 

On the other hand, we have the same signs of economic slow down in Europe and America, considering the latest PMI and retail sales data, which directly affects the Chinese economy as the worlds’ most giant factory. 

This new policy will free up more liquidity to banks, free up more cash that has been set aside at People’s Bank of China (PBOC), and allowing banks to lend more. Besides many other effects, more money in the market will put the Yuan in a weaker position against foreign currencies, mainly the USD, helping the Chinese economy to export more. 

However, this policy is not a significant change in the current guidelines. It can help the smaller businesses, especially the businesses that have been hit by rising costs of raw materials. 

USDCNH – Daily Chart 

The daily chart shows that pairing is back into a clear uptrend to confirm the fundamental data. MACD histograms above 0-line, and price move above EMA 100, Parabolic SAR dots, and OBV trend line. Technical indicators all supporting the current uptrend. 


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