Beijing signals yuan devaluation to protect its exports from Trump’s tariffs

Chinese authorities have reportedly deployed the country’s central bank to resist intense trade pressure from Washington as nearly 85 percent of China’s sales to the US were hit with export tariffs amid an escalating trade war.

The People's Bank of China has announced first steps towards easing monetary policy, pledging to boost demand for the national currency. The regulator said it would cut the amount of cash reserves for some banks by 0.5 basis points and unleash some 700 billion yuan ($108 billion) of liquidity to accelerate the pace of debt-for-equity swaps and support smaller companies.

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The measure, which takes effect July 5, is expected to weaken the national currency and consequently make Chinese goods taxed by the US cheaper. Tariffs announced by President Trump earlier this month will come into force on the same date.

Chinese policymakers have been pushing for debt-for-equity swaps since late 2016 to ease pressure on corporations struggling with their debts.

On Monday, the yuan weakened by 0.74 percent against the US dollar, its lowest since late December, and slightly sank against a basket of currencies, marking a drop of 0.47 points.

“The intensity of the move exceeded market expectations,” Wang Jun, Beijing-based chief economist at Zhongyuan Bank, told Reuters.

“This move will help support the real economy and stabilize financial markets. We’ve seen rising debt defaults and funding strains on small firms, as well as a sharp adjustment in the capital market.”

Last week, China's central bank pledged to deploy all the possible tools of monetary policy to protect its economy against US tariffs, to provide the economy with growth and eliminate financial risks.

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