China Macroeconomics & Academia

Christopher Balding

FX & Rates

<p>With the recent announcement of an impending RRR cut, we take a look back at previous changes in interest rates and the required reserve ratio. Specifically, does a cut in interest make interest rate arbitrage possible and pushing down the value of the RMB?  Furthermore, does a cut in RRR increase lending and release more capital into the market potentially pressuring the RMB? Given the focus on capital controls, how much can we expect these broad monetary factors to impact the CNY?</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/035/217/original/Figure%201.jpg?1507514424" class="editor-image img-responsive" data-smartkarma-image-id="35217"></figure><div class="content-caption">Figure 1</div><p>…</p>

With the recent announcement of an impending RRR cut, we take a look back at previous changes in interest rates and the required reserve ratio. Specifically, does a cut in interest make interest rate arbitrage possible and pushing down the value of the RMB?  Furthermore, does a cut in RRR increase lending and release more capital into the market potentially pressuring the RMB? Given the focus on capital controls, how much can we expect these broad monetary factors to impact the CNY?Figure 1…

What Happens When China Cuts the RRR and Interest Rates?