China Cuts Rates, Infuses Liquidity: Stock Plunge Continues

In what is being seen as an unprecedented move by the People’s Bank of China, it was reported that the Chinese central bank decided to cut interest rates and lowered the amount of reserves banks must hold for the second time in two months as it tries to provide all the support it could to the economy and its financial markets which are under panic selling mode at the current moment. The moves came after Chinese stock markets continue to tumble and are close to 35 percent lower from the all time high they hit in early July which is being seen as a huge negative.

It was also reported that the People’s Bank of China announced today that it was injecting 140 billion yuan into the country’s banking system through short term liquidity operations as it needs to provide the much needed impetus to kick start the slowdown in the economy. It is imperative to state that China continues to remain one of the main growth engines for the world economy. Many analysts believe that a hard landing for the world’s second largest economy would impact the growth trajectories for most nations and could lead to a global recession.

Many analysts though, believe that the People’s Bank of China is running out of options and might not be able to control the contagion and might be forced to leave the market to find its own bottom which might turn out to be a painful process for investors. All eyes are now on the Federal Reserve which meets later this month to decide whether or not to hike interest rates for the first time in seven years. Many on the street believe that the Federal Reserve might hold off hiking interest rates on the back of the turmoil seen in global markets at the current moment.

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