Commodities: Big, Bad Dragon China Tries Benevolent Stimulus - Again
The largest consumer of virtually everything is tempering with banking liquidity for a second time this year to stimulate an economy that hasn’t moved on from the pandemic, even as the rest of the world has raced ahead.
The People’s Bank of China has lowered the reserve requirement ratio for most banks in the country by another 25 basis points, repeating an act from March that brought the weighted average for the so-called RRR of banks to 7.4% this time.
The move essentially reduces the mandatory cash minimum that banks have to hold in reserve — so that they can do more lending to the private sector, which, in return, the Xi Jinping government hopes will result in trickle-down economics that encourages more spending by regular people.
The amount of money that will be freed up will be 500 billion yuan, or around $69 billion, according to an estimate by analysts at New York-based Bespoke Investment Group.
The question almost everyone outside the Chinese Community Party is asking, of course, is whether this will be adequate to shore up the economy from its worst challenge in decades. Take the nation’s Gross Domestic Product, for example. If lucky, Chinese GDP growth will exceed 5% this year versus the record growth of 11.8% in 2020.
An array of economic gambits pulled out of Beijing’s hat since the start of the year have been perceived as too little and often coming too late to turn into game changers. Thus, the question: How different will this be?
Before that could be answered, though, commodities have moved at a lightning pace that’s only common for the resource markets. Oil prices surged to new 10-month highs above $90 a barrel, and copper rallied as well, along with almost every commodity mass-consumed by China as
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