China tipped to start rate cutting ‘road map’ as early as next week, as economic slowdown deepens
- Beijing wants businesses and consumers spend more and save less, with consumption growth remaining anaemic in the world’s second largest economy
- Analysts expect China to gradually slash lending rates to join global monetary easing led by Federal Reserve and European Central Bank
As pressure builds on China’s central bank to contain the impacts of the ongoing US trade war and a broad-based economic slowdown, analysts are tipping it to start an extended cycle of interest rate cuts as early as next week, through its new Loan Prime Rate system.
This would bring the People’s Bank of China (PBOC) into line with a global monetary easing cycle led by the US Federal Reserve and the European Central Bank and follows the PBOC’s decision on Friday to pump 900 billion yuan (US$126 billion) into the banking system to boost lending.
Its next policy step is now expected to be an interest-rate cut later this month, with the bottom line being that Beijing wants businesses and consumers spend more and save less, with consumption growth remaining anaemic in the world’s second largest economy.
“There is room for policy rates to be cut and it is necessary to do so given central banks worldwide have restarted monetary easing,” said Wen Bin, chief macro analyst at China Minsheng Bank, who expects a 10 basis point cut of China’s medium-term lending facility (MLF) rate on September 17.
Analysts’ expectations that the Federal Reserve will cut its official rates next week, along with the widespread view that the European Central Bank will cut its interest rates and possibly restart quantitative easing at its next meeting on Thursday, also open the door for the PBOC to start cutting Chinese interest rates.