World looks to China to act as circuit break for rout it started

Beijing

CHINA's central bank, which helped trigger a market rout with a surprise devaluation two weeks ago, may be the only one around the world with the firepower to arrest it.

With about 25 trillion yuan (S$5.5 trillion) of bank deposits still 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 US, 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 China's devaluation of the yuan on Aug 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 e…