The U.S. Federal Reserve's interest rate cut takes some pressure off the People's Bank of China, amid the multitude of challenges it already faces to keep the economy growing steadily.
Matt Toms, chief investment officer of fixed income at Voya Investment Management, said the market moves were likely an overreaction.
The greater challenge is the central bank has many goals and needs many policies to achieve these goals. This is a lot more complex than the Fed.On Thursday, the People's Bank of China set the yuan's midpoint slightly weaker against the greenback, at 6.8938. The currency has remained in a relatively narrow range this year, about half a percent weaker against the dollar for the year so far, according to Wind Information.
In a Chinese statement translated by CNBC, Ma also said that if economic growth slows in the third or fourth quarter, a central bank cut to the reserve requirement ratio — or the amount that banks need to set aside as reserves — is a possibility. Some other loosening measures may also be possible.However, analysts generally put less weight on such rate reductions than they do on other government measures aimed at stimulating the economy.
In contrast to the Fed's policy emphasis on a single interest rate, China's central bank uses a range of rates and measures to support economic growth in a complex, state-controlled environment. These tactics include efforts to boost loans to privately run businesses, rather than the state-owned enterprises that the large, government-owned banks have preferred to lend to.— such as tax cuts and boosts to local government spending — to play a greater role than monetary policy.
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