China has entered the global monetary-easing fray, along with more than a dozen other economies, after its central bank surprised investors by cutting reserve requirements 50 basis points to spur lending and combat deflation. But Beijing may be raring for an even bigger and more perilous fight -- in the currency markets.
Reducing the amount of cash that banks are required to set aside (to 19.5 percent), as China has just done, is largely symbolic -- a don't-panic-we're-on-top-of-things reassurance to international markets and local property developers. Still, the move is also an inflection point. China is in all likelihood about to loosen monetary policy considerably to support economic growth. If global conditions worsen, China's one-year lending rate, now at 5.6 percent, could head toward zero.
Read Full Article »