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Friday, September 22, 2023

China boosts its economy

China has escalated its efforts to stimulate the economy and bolster its currency amid ongoing concerns about economic growth. The People’s Bank of China (PBOC) announced its first reduction this year in the required foreign currency deposits that banks must hold as reserves.

This move followed the introduction of fresh stimulus measures for the struggling property sector and plans to expand tax incentives for child and parental care and education.

These actions represent the latest attempts to restore confidence in the world’s second-largest economy, which is grappling with a persistent housing crisis, reduced global demand, and rising unemployment.

Authorities have opted for targeted measures rather than a large-scale stimulus approach, as seen during the 2008 global financial crisis due to concerns about high debt levels.

Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group Ltd., remarked, “The policy package exceeds market expectations,” adding that it should boost confidence in the short term, although more evidence is needed to confirm a turnaround.

Starting on September 15, financial institutions will only need to maintain 4% of their foreign exchange deposits in reserve, down from the current 6%. This change effectively increases the availability of foreign currency in the local market, making it more attractive for traders to purchase the yuan.

As China implements a growing number of stimulus measures, its markets are beginning to exhibit signs of stability, with the yuan, stocks, and various commodities recording modest gains, which traders view as a positive development.

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