On September 24, Pan Gongsheng, governor of the People’s Bank of China announced that the reserve requirement ratio (RRR) for Chinese banks will be cut by 0.5 percentage points in the near future, a move which had been awaited following the US Federal Reserve’s interest rate cut last week. This will release RMB 1 trillion ($142 billion) in long-term liquidity into the market.
In addition, China may cut the RRR further depending on the liquidity situation in the market.
At the same time, the PBOC governor mentioned that China will lower the housing loan interest rate for existing home sales, aiming to induce commercial banks to lower the interest rates on mortgages to the newly-issued levels. Moreover, China has cut the minimum downpayment ratio for second house purchases from 25 percent to 15 percent across the country. The steps taken by the PBOC will boost the purchasing power of ordinary people and bolster economic development, and will likely stimulate the demand for steel as well.
Today’s announcements have already pushed up steel futures prices, with rebar at Shanghai Futures Exchange up 3.21 percent, while iron ore futures prices at Dalian Commodity Exchange have increased by 4.64 percent. “The firm positive stimulus policy has supported the market a lot and the Shanghai stock market has seen its best performance in the last four years… Mills have raised their ex-works price repeatedly five or six times and most sales regions have some upward price adjustments by RMB 60-90,” a Chinese trader noted. One of the Chinese mills said that this has made expectations better for the pre-holiday period and confidence has emerged for a positive trend after the National Day holidays.
$1 = RMB 7.051