China Cuts Banks' Ability to Lend

News:
The Chinese government once again surprises the market by increasing bank’s reserve requirement ratio to curb the overheating economy, after last week’s surprise increase in the bond yield on one-year bills.

Implication:
Theses actions reflect that the Chinese economy is overheating and show the government’s determination to fight against the growing inflation. Unless the economy slows down itself soon, the government will make further steps to contain the growth/inflation as they did before the 2008-2009 financial crisis. In either case, the Chinese economy will slow down in the near future. Given that the Chinese economy is the third largest and is the main pillar to support the world economies during the recession last year, the slowdown will depress the energy (oil, coal) and material prices (steel, copper, gold…etc), which will hurt the resources denominated currencies such as Australian Dollar, Canadian Dollar, and New Zealand Dollar…etc. Moreover, due to the stock markets non-stop rising from the bottom since March 2009, the long-overdue correction will also be triggered soon by the slowdown. However, the correction is predicted to have a short life only.