China Cuts Rates in Line with US, Boosting Liquidity

The People’s Bank of China (PBOC) has announced a reduction in the reserve requirement ratio for mainland banks by 50 basis points, alongside a 20 basis point decrease in the seven-day reverse repo rate, bringing it down to 1.5%. Additionally, the central bank has lowered the minimum down payment requirement for mortgages to 15%.

While digital assets remained relatively unaffected by these rate cuts and stimulus measures, regional stock indices responded positively. Hong Kong’s Hang Seng index rose by 3.2%, and the Shanghai Composite index increased by 2.3%.

Lynn Song, chief economist for Greater China at ING, commented that this policy package is likely to put slight downward pressure on the yuan, with the USD-CNY exchange rate expected to rise following the PBOC’s easing. However, medium-term factors like interest rate spreads could lead to a gradual appreciation of the yuan.

According to QCP Capital, Bitcoin may benefit from the increased liquidity and risk-on sentiment stemming from the global easing of monetary policies. The PBOC’s 50-basis-point cut in reserve requirement ratios signals a broader trend of monetary easing seen in the United States, the European Central Bank (ECB), and other regions this month.

This global phenomenon is seen as positive for crypto investors. QCP noted that the 4.15% rise in the Shanghai Composite Index on the day of the announcement was largely driven by the PBOC’s significant stimulus measures, which they view as a pivotal moment for global markets.

The 50-basis-point cut is expected to free up 1 trillion yuan for lending, along with a 500 billion yuan funding program for stock market investments, fostering optimism across global markets. QCP anticipates a “wave of global easing” that will facilitate increased capital inflow into risk assets.

Dan Tapiero, founder and CEO of 10T Holdings, described China’s decision as a significant macro event. He highlighted the government’s aggressive stance in response to challenging conditions, noting that the combination of quantitative easing and rate cuts would inject substantial liquidity into the market. He expressed a bullish outlook for both Bitcoin and gold in light of these developments.