China picks its battles, to ease monetary policy amid trade war
Yuan at level where investors can consider buying it as long-term investment, according to one industry watcher
Beijing is likely to shift its monetary policy from deleveraging to one “buttressing” growth, after its ongoing trade war with the United States cooled economic growth in the second quarter, according to a research report released by DBS on Tuesday. Deleveraging was adopted to curb shadow banking and excessive borrowing by local governments and companies.
“The People’s Bank of China is likely to shift its stance from deleveraging to buttressing growth. Local companies have been facing serious liquidity issues amid deleveraging and the forthcoming tax season. The amount of medium-term lending facilities due in the next 12 months will rise to 4.2 trillion yuan,” Samuel Tse, an economist at the bank, said in the report.
“Indeed, the market has started to price in the changing signals of its monetary policy stance. The Shanghai Interbank Offered Rate has dropped by 95 basis points within three weeks. In response, the yuan has depreciated from 6.27 in mid-April to 6.69 in mid-July. Expect the yuan to remain under pressure,” said Tse.
The report follows yuan deposit rate cuts at HSBC, Hong Kong’s biggest bank, on Friday, and at local mid-tier lender Wing Lung Bank, which cut the rate several times over the past two weeks. Other major banks, such as Hang Seng Bank, Standard Chartered Bank and ICBC Asia, have not changed their rates, but currency traders believe they will follow the trend and lower their yuan time deposit rates, because the People’s Bank of China is likely to continue with a low interest rate and monetary easing regime amid the ongoing trade war.
HSBC cut rates across all tenures, with the one-month yuan time deposit rate down to 2 per cent from 2.7 per cent, the three-month rate down to 2.9 per cent from 3.35 per cent, the six-month rate down to 3.1 per cent from 3.4 per cent, and the 12-month rate down to 3.4 per cent from 3.45 per cent.
“We have adjusted the yuan time deposit rates in response to the recent movement of yuan interbank rates in Hong Kong,” said a bank spokeswoman.