New | World looks to China to stop equities rout
People's Bank of China seen as the only central bank with firepower to check sell-off that has wiped US$5tr off stock value since yuan devaluation
China, which helped trigger a market rout with a surprise devaluation two weeks ago, may be the only one in the world with the firepower to arrest it.
With about 25 trillion yuan of bank deposits locked up as reserves and the benchmark one-year interest rate at 4.85 per cent, the People's Bank of China has an ample monetary policy arsenal at its disposal.
Lending rates in the United States, Europe and Japan already are close to zero and the rout is shaking confidence that the global economy will be strong enough to withstand an expected policy tightening by the Federal Reserve.
More than US$5 trillion has been erased from the value of stocks worldwide since the yuan's devaluation on August 11, which deepened concerns over a malaise in the world's second-biggest economy.
A global sell-off in riskier assets quickened on Monday as commodity prices sank to a 16-year low and emerging market currencies weakened. Chinese stocks plunged the most since 2007.
"They need to prop up market confidence," said Rob Carnell, the chief international economist at ING Bank in London. "They'll probably feel under pressure to do something which is not going to disappoint markets, but that will require them to come in large and eat up whatever ammunition they have left. If it only has a temporary effect, they'll only look more vulnerable afterward."