After the US Federal Reserve’s interest rate decision this week, it is very likely to announce interest rate cuts
It will provide policy space for China to cut interest rates. Will the People’s Bank follow the US interest rate cut?
Yesterday, the Politburo of the CPC Central Committee pointed out that the current Chinese economy is facing new risks and challenges, and the downward pressure on the economy is increasing. In the second half of the year, monetary policy should implement a proactive fiscal policy and a prudent monetary challenge, requiring monetary policy to be “tight and moderate”. The liquidity is reasonably abundant”; for the first time, it is clearly stated that “the real estate is not used as a means of stimulating the economy in the short term.”
Estimated temporarily or in disguised direction
Judging from the adjustment of the Politburo meeting, the entire economic market is still relatively stable, especially in June, when the data beat expectations. Therefore, it is expected that the mainland will continue to adopt “counter-cyclical adjustment” to deal with downward pressure in the short-term. Therefore, it may not be very likely to follow the US interest rate for deposit and loan in the short term.
It is worth noting that the recent financial risk incidents in the Mainland have occurred frequently. After the acceptance of the Bank of China, many small banks have encountered difficulties. Together with local debt and P2P risks, some cities have shown signs of overheating and financial risks have become prominent. In order to prevent and control financial risks, some hot cities have recently tightened the property market regulation policy and raised the mortgage mortgage interest rate.
If the economy goes too fast, it may still cut interest rates
Therefore, in the second half of the year, the Mainland needs to strike a balance between “guarantee growth” and “anti-risk”. Interest rate cuts may release too strong easing signals to the market, adding building market bubbles and financial risks. Therefore, it is expected that the PBOC will not follow the US in the short term. Cut interest rates, but by lowering the open market and policy operating interest rates, disguised targeted interest rate cuts, guiding the downward price of funds, supporting the operating costs of enterprises, and actively reducing the economy through tax cuts and fees, in order to achieve “steady growth” and “guarantee employment” purpose.
However, the Sino-US trade war continues. In the second half of the year, the downward pressure on the mainland economy is obvious. If the economy is going too fast, the PBOC may still cut interest rates and maintain growth, ensuring that GDP will not fall below the 6% ceiling and protect employment.
The RMB exchange rate is one of the key issues in Sino-US trade negotiations. The non-performation of the People’s Bank of China to cut interest rates will help ease the depreciation pressure of the RMB against the US dollar and maintain the relative stability of the RMB exchange rate.