Thursday, May 19, 2022
Home Business In an unexpected move, China holds back on cutting key rate

In an unexpected move, China holds back on cutting key rate


The metropolis of Shanghai, where many foreign businesses are located, entered a two-part lockdown this week as municipal authorities sought to control an outbreak in China’s worst Covid wave in two years.

Hector Retamal | Afp | Getty Images

China’s central bank kept a key interest rate unchanged on Friday in a surprise move, despite expectations for more stimulus as Beijing grapples with a Covid surge.

The People’s Bank of China said it was keeping the rate on its one-year medium-term loan unchanged at 2.85%.

The Asian giant is facing its worst Covid outbreak since the start of the pandemic in late 2019, as it locks down key cities like Shanghai.

The mass lockdowns sparked predictions that its GDP growth would fall to below the government’s target of 5.5% for this year, prompting some economists and analysts to expect a rate cut.

“The People’s Bank (PBOC) forwent the opportunity to lower its policy rates today. That’s somewhat surprising given the sharp economic downturn and recent calls from China’s leadership for monetary support,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

“Most analysts, including us, had expected a cut,” he said.

Before Friday’s surprise decision, investment firm KraneShares said in an overnight note that Chinese stocks rose Thursday in anticipation of the Chinese central bank cutting the medium-term loan facility, as well as the bank reserve requirement ratio and loan prime rate.

Policy easing “feels like a done deal,” KraneShares Chief Investment Officer Brendan Ahern had said in the note. He cited recent comments from the central bank which said downward pressure on China’s economy had increased, driven by the Covid restrictions.

Premier Li Keqiang was also cited by state media as saying last week that China will boost policy measures to support the economy while looking into new stimulus. Analysts were expecting China’s central bank to lower borrowing costs or pump more cash into the economy to spur growth, according to Reuters.

The central bank Friday also did not release more cash into the system, opting to roll over 150 billion yuan ($23.5 billion) worth of medium-term lending facility loans.

“It underscores the reluctance of the central bank to aggressively ease policy,” said Evans-Pritchard, of the PBOC’s moves Friday. “But we think it will have little choice but to do more before long.”

Read more about China from CNBC Pro

China’s economic growth is seen as likely slowing to 5% for this year as it takes a blow from the renewed Covid outbreak, a Reuters poll showed. That’s below the government’s target of 5.5%.

However, some analysts pointed out that China’s central bank has limited headroom to increase rates due to rapidly rising consumer prices.

“Rising food and energy price inflation limits the space for the PBOC to cut interest rates, despite the rapidly worsening economy,” Nomura’s chief China economist Ting Lu said in a note Monday.

— CNBC’s Evelyn Cheng contributed to this report.



Source link

RELATED ARTICLES

S&P lowers India growth projection to 7.3% for FY23

With rising inflation and the longer-than-expected Russia-Ukraine conflict, S&P Global Ratings on Wednesday lowered India’s growth projection for the current fiscal year to...

Best Reasons to Consider Professional Tile and Grout Cleaning Services

Tiles and grouts can transform your plainest kitchen and bathroom into a colorful and modern-day place. But through the years, if they may now...

What is WatchCartoonOnline & Top 12 WatchCartoonOnline Alternatives of 2022

As we all know that animated shows, animated movies and cartoons are not only made for children. Adults can also watch animated shows. There...
- Advertisment -

Most Popular

S&P lowers India growth projection to 7.3% for FY23

With rising inflation and the longer-than-expected Russia-Ukraine conflict, S&P Global Ratings on Wednesday lowered India’s growth projection for the current fiscal year to...

Best Reasons to Consider Professional Tile and Grout Cleaning Services

Tiles and grouts can transform your plainest kitchen and bathroom into a colorful and modern-day place. But through the years, if they may now...

What is WatchCartoonOnline & Top 12 WatchCartoonOnline Alternatives of 2022

As we all know that animated shows, animated movies and cartoons are not only made for children. Adults can also watch animated shows. There...

Top five Common Tile Cleaning Mistakes to Avoid

Tile floors, grout cleaning services, and different similar surfaces have an awesome level of durability and are tremendously clean to clean and hold. When...