### Major Developments from China: Implications for Cryptocurrencies Ahead!
The People’s Republic of China has finally unveiled a long-anticipated stimulus package, aimed at jumpstarting its economy. This development could have significant repercussions for the cryptocurrency market as well.
**Author:** Mete Demiralp
**Date:** 24.09.2024 – 12:54
**Update:** 6 seconds ago
In an effort to combat its sluggish economy, China’s central bank has introduced its most robust stimulus measures since the onset of the pandemic. The goal is to revive economic activity and align it with the government’s growth objectives.
However, experts caution that without further fiscal backing, these initiatives may fall short in addressing the ongoing deflationary pressures and structural issues the country faces. The People’s Bank of China (PBOC) has rolled out an extensive package of interest rate reductions and increased funding to invigorate the world’s second-largest economy. These actions follow a series of disappointing economic indicators that have raised alarms about a potential prolonged recession. While the PBOC aims to restore confidence amid weak consumer and business demand, analysts are skeptical about the effectiveness of this stimulus in reviving growth.
“This represents the PBOC’s most significant stimulus effort since the early days of the pandemic,” remarked Julian Evans-Pritchard, an analyst at Capital Economics. Nonetheless, he noted that “this alone may not suffice,” implying that additional fiscal measures will be necessary to achieve China’s official growth target of approximately 5% for the year.
The response from financial markets has been largely positive, with Chinese stocks and bonds witnessing gains and Asian markets reaching their highest points in 2.5 years. Additionally, the yuan has strengthened, reaching its highest value against the US dollar in 16 months. PBOC Chairman Pan Gongsheng has laid out plans to reduce borrowing costs, enhance liquidity, and alleviate the mortgage repayment pressures on households.
Key measures include a 50 basis point cut to banks’ reserve requirement ratios (RRR), which will free up around 1 trillion yuan (approximately $142 billion) for new loans. Pan also hinted at the possibility of further RRR cuts of between 0.25 to 0.5 points later this year, contingent on market liquidity. Additionally, the PBOC plans to lower the seven-day reverse repo rate by 0.2 points to 1.5%, among other rate adjustments.
“This action may have come a bit late, but it’s certainly better late than never,” stated Gary Ng, a senior economist at Natixis, emphasizing the necessity of a lower interest rate environment to bolster confidence in the economy.
Prominent investment banks such as Goldman Sachs, Nomura, UBS, and Bank of America have recently revised their growth forecasts for China downward for 2024.
*Disclaimer: This is not investment advice.*
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