Following the ongoing trade war with the United States, it is likely that China would announce a shift in its monetary policy from one that leverages to one that is able to buttress” growth. This after the second largest economy showed sings of slowdown in the second quarter. This was stated in a research report that was released by DBS on Tuesday. CXhinese policy makers had taken recourse in deleveraging to bring down shadow banking and excessive borrowing by companies as well as by local governments.
“The People’s Bank of China is likely to shift its stance from deleveraging to buttressing growth. Local companies have been facing serious liquidity issues amid deleveraging and the forthcoming tax season. The amount of medium-term lending facilities due in the next 12 months will rise to 4.2 trillion yuan,” Samuel Tse, an economist at the bank, said in the report.
“Indeed, the market has started to price in the changing signals of its monetary policy stance. The Shanghai Interbank Offered Rate has dropped by 95 basis points within three weeks. In response, the yuan has depreciated from 6.27 in mid-April to 6.69 in mid-July. Expect the yuan to remain under pressure,” said Tse.
There had been a lowering in the yuan deposit rate at HSBC – the largest bank in Hong Kong on Friday as well as multiple rate cuts by Wing Lung Bank – a local mid-tier lender, overt the last two weeks. Rates have however not bene changed by other major lenders like Hang Seng Bank, Standard Chartered Bank and ICBC Asia. But according to predictions by analysts, since the People’s Bank of China would pursue it’s low interest rate policy and the policy of monetary easing amidst the escalating trade war, these lenders would also have to eventually lower their yuan time deposit rates.
“We have adjusted the yuan time deposit rates in response to the recent movement of yuan interbank rates in Hong Kong,” said a HSBC bank spokeswoman.
“The PBOC cut the reserve requirement ratio last week to unlock billions in cash for the market. This has lowered the onshore yuan interest rate in Shanghai, and also the interest rate for the offshore yuan in Hong Kong,” said Tommy Ong, managing director of treasury and markets at DBS Hong Kong.
There is likely to be a regimen of lower interest rates as the monetary easing policy of China would likely be continued, said Jasper Lo Cho-yan, chief investment strategist at Hong Kong-based Eddid Securities and Futures. This means that the international rate of exchange of the yuan will remain steady at the current low level of 6.7333 per US dollar and might even further go down to about 6.90 this year.
“However, I do not believe the PBOC will let the yuan go down any further, below the 6.90 level, as this may lead to a serious capital outflow problem. The PBOC will intervene in the market if the yuan falls to such a low,” said Lo.
(Adapted from SCMP.com)