Should the PBOC cut interest rates in China to aid slowing economy?
- A debate is raging among analysts over whether The People’s Bank of China should intervene
- Disappointing economic data and the ongoing trade war with the US creating uncertainty
A decision on cutting interest rates in China weighs the need to bolster the slowing economy with the objectives of curtailing the debt build-up and preventing a slump in the currency.
After still-more disappointing economic data and fog around the trade war with the US, investors are upping their bets that more stimulus is on the way.
The People’s Bank of China (PBOC) could reduce the one-year lending rate, sending borrowing costs lower across the economy, or focus on driving down interbank lending rates through reverse repurchase agreements.
Among economists surveyed by Bloomberg, the consensus forecast sees the benchmark one-year rate remaining on hold for at least the next year, but a debate is raging.
Ming Ming from Citic Securities and Lu Zhengwei from Industrial Bank say a cut in the benchmark rate or the open market operation rates is needed to encourage credit and lower funding costs.
Goldman Sachs have said they expect interbank rates to be managed lower to help growth recover.
External pressure preventing much looser policy is declining, particularly amid signs that the US Federal Reserve is turning more dovish.
An easing of downward pressure on the yuan, which has declined about 6 per cent this year, would mean much greater room for policymakers to cut the cost of borrowing without fear of accelerated declines or even capital flight.