In a surprising development, the People’s Bank of China (PBoC) has decided to reduce the Reserve Requirement Ratio (RRR) by 50 basis points. This move aims to significantly boost risk assets, particularly cryptocurrencies, in line with the Chinese government’s recent proposal of a substantial $278 billion package to strengthen the nation’s stock markets.
The QCP Market Update suggests that the PBoC’s unexpected move could be a game-changer for risk assets, especially in the dynamic world of cryptocurrencies. This announcement also sheds light on the potential impact of the US Treasury issuing more short-term debt—a move expected to further strengthen both risk assets and the crypto market.
A solid display of transparency
In an unusual display of transparency, the PBoC openly revealed the RRR cut, a move that comes amidst growing economic concerns and a significant downturn in the stock market. Governor Pan Gongsheng stated that the scheduled implementation of the cut on February 5 aims to inject a staggering 1 trillion Yuan, equivalent to $139 billion, in long-term liquidity into the market.
This strategic step is anticipated to stabilize the economy and counteract a looming $6 trillion stock-market rout.
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The announcement triggered a wave of positive movements, with Chinese equities witnessing a remarkable rise of 7-8% from recent lows. This surge provided much-needed support to various risk assets, including the crypto market. The PBoC’s comprehensive measures also encompass interest rate reductions on re-lending funds, incentivizing loans for agriculture and small businesses.
Market analysts are on high alert, closely monitoring the upcoming Federal Open Market Committee (FOMC) meeting scheduled for January 31 and eagerly awaiting the Quarterly Refunding Announcement by the US Treasury. The anticipation is that these events will offer valuable insights into the pace of the balance sheet runoff and potential actions that could further influence risk assets and cryptocurrency markets on a global scale.
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