This is the second reduction this year, which is aimed at bolstering the faltering economic growth of the country.
The People’s Bank of China (PBOC) said it would cut the reserve requirement ratio (RRR) for all banks, except those that have implemented a 5% reserve ratio.
The move took effect Friday and was flagged on Tuesday by PBOC Governor Pan Gongsheng at a press conference, alongside cuts in several key interest rates and measures supporting capital markets aimed at stimulating economic activity amid persistent deflationary pressures.
The world’s second-largest economy is the largest consumer of metals and moves to spur economic activity are seen as a positive for commodities and the news of China slashing interest rates on outstanding mortgages to boost consumption has led to an uptick in metal stocks.
While commenting on the Chinese stimulus, global brokerage firm CLSA stated that Indian mills are well placed for a demand-driven upcycle. Assuming a strong demand driven upcycle, one could see highest upside for Vedanta (+24%), Tata Steel (+19%) and Hindalco (+16%).CLSA further stated that they prefer a play on alloys but see near-term support for ferrous names as well.Also read: Reliance Power shares zoom 47% in 8 days. Here’s why
“Historically, while a rebound in metal prices is anticipated in the short term, it has often fallen short of expectations,” said Parthiv Jhonsa, Lead Analyst (Metal & Mining), Anand Rathi Institutional Equities.
“We believe that the Chinese housing market has been struggling for the past four years, and unless there is stabilization in prices and a reduction in unsold inventory, any government initiatives will likely be inadequate,” added Jhonsa.
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