The Chinese central bank held the 1-year loan prime rate (LPR) at 3.00% and the 5-year rate at 3.50% earlier today here. This comes after the slightly better than expected showing in Q2 GDP seen last week here. The data serves to reaffirm that the Chinese economy is still holding up, that especially after strong concerns surrounding a trade war between Beijing and Washington.
And given that both sides have now reached a temporary truce of sorts, China will see little urgency to press forward with further easing measures until they are backed into a corner again.
As things stand, China could do with more help from the fiscal side rather than any further monetary easing and rate cuts to bolster domestic demand. So, it makes sense for the PBOC to keep some ammunition for when they might need to use it more desperately.
I mean, you never know when Trump might suddenly just turn around and reignite the whole trade war again. So, Beijing has to be best prepared for that just in case. As such, they will most definitely prepare to save further easing measures for a more rainy day than the one they’re in.
Looking to the second half of the year, the ongoing economic slowdown is still something to be wary about. US tariffs will also start to show up in impacting China exports potentially and that could heap more pressure on the fiscal side of things alongside domestic factors.
The only real reason that might allow the PBOC to cut rates right now is arguably disinflationary pressures. So, there’s quite a balance to be struck in the months to come. The decision on rates moving forward will not be as easy as the one today surely.
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This article was written by Justin Low at investinglive.com.
