Two Can Play at that Game: China Unleashes Stimulus Package

Two can play at that game as China unveils package to boost economy.

Following the Fed’s .50 bps cut last week, the People's Bank of China (PBOC) announced a 0.5% cut to the Reserve Requirement Ratio (RRR) — the percentage of deposits banks are required to hold in reserves with the central bank.

The move was accompanied by a 0.2% reduction in the seven-day repo rate.

In addition, the PBOC unveiled a historic $5.3tn package aimed at reducing mortgage rates and downpayment requirements for second-home buyers.

United Kingdom Update

The Bank of England’s Monetary Policy Committee voted 8 to 1 to hold at 5%. It also reduced its stock of bonds by £100 billion ($133 billion) over the next 12 months via active sales and bond maturation.

The BoE's approach to future rate cuts remains cautious and data-dependent. Governor Andrew Bailey has signaled that interest rates are on a gradual downward path, but the central bank wants to avoid cutting rates "too quickly or by too much" to ensure inflation remains under control.

Many analysts anticipate another rate cut in November, potentially to 4.75%. Financial markets are pricing in two more rate cuts in 2024, expecting the end-year interest rate to be around 4.50%. However, the BoE has emphasized that future decisions will be made on a meeting-by-meeting basis, considering the latest economic data and inflation trends.

And while the Bank of England has begun a cautious easing cycle, it remains vigilant about inflationary pressures and is taking a measured approach.

Argentina Update

Argentina's foreign currency deposits have jumped by around $8 billion since libertarian President Javier Milei took office late last year. In fact, foreign currency deposits exceed $24 billion, up from around $16.5 billion.

Important to lifting the nation out of recession is the need for injections of funds into the economy and financial system, not least of which requires patching huge deficits. The Milei government offered amnesty until the end of this month to bring funds back into the formal system without penalty – traditionally, the country’s savers hoarded dollars outside the formal banking system, offshore, under mattresses and increasingly in stablecoins.

READ Understanding Impuesto PAIS and its Impact on Argentina

Japan Update

Bank of Japan Holds Interest Rates at 0.25%.

“The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25 percent,” it published in its Statement on Monetary Policy dated 20 September. It’s the highest rate since 2008. Japan’s core CPI is +2.8% YoY.

India Update

India announced it would not join the Regional Comprehensive Economic Partnership (RCEP), citing not wanting to be part of a free trade agreement with China. The RCEP is the world’s largest free trade agreement by GDP.

The RCEP was signed in 2020 by 15 Asia-Pacific countries — which makes up  30% of global GDP. The five largest trading partners are China, South Korea, Japan, Australia and New Zealand.

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