China’s central bank, the People’s Bank of China, said Tuesday it had cut interest rates for the fifth time in nine months after another poor trading session in which the Shanghai Composite shed 7.6 percent. Japan’s Nikkei also fell 3.96 percent overnight.
Rutledge added that the central bank’s move to lower interest rates signals that the country is aware that its economy is slowing down and that it’s seeing large sums of money leaving.
“In China, the reserve requirement plays a different role than it does in the U.S. and Europe. When capital flows into China, it flows into the banks, and the central bank raises the reserve requirement to sop it up. When capital flows out, it lowers the reserve requirement,” he said.
He added that, as China’s economy keeps slowing down, its central bank may enact quantitative easing.
“[With] slowing China and still-falling markets, they’re not going to do fiscal stimulus next time around to build railroads; they’re going QE,” he also said. “I think we should be looking forward to much bigger announcements from the Chinese central bank.”
