Yuan pressure means China set to hold policy rate despite growing economic woes

People’s Bank of China set to keep the interest rate on its one-year medium-term lending facility (MLF) unchanged at 2.75 per cent on Thursday

The central bank surprised markets in August by lowering key interest rates to revive credit demand and prop up a slowing economy hurt by coronavirus shocks

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In a poll of 28 market watchers this week, 27 respondents forecast the interest rate on the one-year medium-term lending facility (MLF) would stay unchanged at 2.75 per cent on Thursday. Photo: Reuters

Published: 2:05pm, 14 Sep 2022

China’s central bank is widely expected to pause its monetary easing efforts and keep the medium-term policy rate steady this month, a Reuters survey showed, as widening policy divergence with the US Federal Reserve could put further pressure on the Chinese yuan and risk capital outflows.

The People’s Bank of China (PBOC) surprised markets in August by lowering key interest rates to revive credit demand and prop up a slowing economy hurt by coronavirus shocks.

Data since then has pointed to a further loss of momentum, with growing lockdowns weighing heavily on spending and confidence, and the property market mired in a deep slump.

Some analysts said the economy could remain weak at least through until the end of the year.

With the yuan under recent weakening pressure, we don’t anticipate the PBOC making any further amendments to its one-year medium-term lending facility rate [this week]

ING analysts

But the policy divergence with most other major economies, which are raising interest rates aggressively to combat high inflation, has pressured the yuan, which fell more than 3 per cent against the US dollar since mid-August to near the psychologically important 7 mark.

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