Fed rate cut would ease pressure on China’s central bank - analysts
11.07.2019, 08:19

Fed rate cut would ease pressure on China’s central bank - analysts

A widely expected interest rate cut by the U.S. Federal Reserve would give China more breathing room in shoring up its slowing economy, some analysts said.

Markets took Fed Chairman Jerome Powell’s comments during the first of a two-day Congressional testimony as affirming expectations for easier monetary policy in the U.S. T

A looser monetary policy environment would reduce pressure on China’s central bank to ease monetary policy..

“If the Fed does go ahead and cut rates, which I don’t think is a given ... it simply means the PBoC has a little breathing room to see if the policies it has implemented have an impact on the real economy,” Hannah Anderson, global market strategist at J.P. Morgan Asset Management, told.

The central bank will also face less pressure to allow the yuan to depreciate, making it easier to maintain a goal of keeping the exchange rate stable, she said, while higher Treasury prices would boost the paper value of the PBoC’s holdings, increasing confidence.

Some analysts expect if the Fed cuts rates, it will go so far as to prompt China’s central bank to take similar action.

“If (make that when) the Fed cuts rates then it’s quite likely the PBOC will follow suit,” Leland Miller, chief executive officer of China Beige Book, said. 

“But a benchmark interest rate cut is almost purely a symbolic move that won’t affect most corporates,” Miller said. He noted that “only a small subset of (state-owned enterprises) pay the benchmark rate, and most of those firms don’t have to repay their loans anyway.”

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