Fed "strongly" cuts interest rates, China is not shaken, still determined to do this

China surprised markets on September 20 by keeping mortgage rates unchanged, despite growing calls to help revive the crisis-hit property market and boost the national economy .

The People's Bank of China (PBOC) kept its five-year loan prime rate (LPR) unchanged despite the Fed's move. (Source: AP)

The five-year loan prime rate (LPR), widely used by Chinese banks as a reference for mortgage rates, remained unchanged at 3.85 percent, according to the People's Bank of China (PBOC).

A Reuters poll had predicted a cut in the LPR, especially after the US Federal Reserve announced a half-percentage-point rate cut on September 18. Meanwhile, China's one-year LPR was also unchanged at 3.35%.

"I was surprised because I had expected the PBOC to follow the Fed and cut the benchmark lending rate by 10 basis points," said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.

"The latest activity data shows that economic momentum is weakening, real interest rates in China are quite high, and the exchange rate is not under depreciation pressure, but the PBOC wants to keep the benchmark lending rate unchanged. However, I still expect the PBOC to cut interest rates in the coming months as this is necessary to address deflationary pressures in the economy," the expert added.

The move came after the Fed cut interest rates to narrow the interest rate differential with Washington, giving the PBOC more room to ease monetary policy to address weak domestic demand, analysts said.

Huang Zichun, China economist at Capital Economics, said keeping the LPR unchanged showed the PBOC was still constrained by concerns about bank profitability and falling long-term bond yields.

“While we expect some monetary easing in the coming quarters, it is likely to remain modest and insufficient to spur a turnaround in private sector demand,” Ms. Huang forecast.

And with the PBOC “likely to maintain a cautious approach to easing,” Mr Huang expects policy rates to fall by 10 basis points in the next quarter and by 20 basis points in 2025.

However, that number would be too small to significantly boost credit growth and overall economic activity, in part because real interest rates would remain quite constrained given persistently low inflation, according to Ms. Huang.

Also on September 20, the PBOC set the daily reference rate for the onshore yuan at 7.0644, up from the previous fix of 7.0983, to the highest level since May 29, 2023.

Source: https://baoquocte.vn/fed-manh-tay-cat-giam-lai-suat-trung-quoc-khong-he-nao-nung-van-kien-quyet-lam-dieu-nay-287029.html