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China Adds Open Market Purchases to Easing Package

People’s Bank of China Adds Daily Open Market Operations Alongside Another Reserve Ratio Cut

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In a two pronged approach aimed at combating worsening liquidity conditions, the People’s Bank of China worked to free up additional capital to fuel sustained lending while acting to offset the impact of sliding foreign currency reserves in the globe’s second largest economy.

Weekly Review

After a prolonged period of volatility in risk assets across the globe, action on the part of the Chinese central bank spurred a global reversal, fueling positive momentum in global equity markets.  The move by the PBOC to reduce banks' reserve ratio requirements from 17.50% to 17.00% is an attempt to tackle troublesome liquidity conditions amid the accelerated pace of capital outflows and rapidly declining foreign currency reserves.  The addition of daily liquidity operations further helped to ease negative sentiment with investors calmed by the more accommodative activities. 

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The Week Ahead

Outside of Asia, Europe continued to see mixed conditions with the Euro Area once again at risk of slipping back into deflationary territory after disappointing CPI and PPI figures were released.  Speculation is high that the European Central Bank will ease policy conditions further in the upcoming meeting to help spur inflation and unleash spending across the economy.  However, one sign of optimism came from the United States after payrolls managed to beat expectations, raising the chances of another rate hike before the end of the calendar year. 

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