After the US Federal Reserve delivered its first interest rate cut of the year, analysts said China’s central bank would be most likely engage in moderate easing this year even as the cut creates more room for looser monetary policy.
The move followed the Fed’s announcement on Wednesday of a widely expected cut of 0.25 percentage points to its benchmark borrowing rate – to the 4-4.25 per cent range – during the two-day Federal Open Market Committee meeting.
Following the Fed’s announcement, the offshore yuan strengthened overnight, reaching a high of 7.086 per US dollar before trading at 7.107 by Thursday morning following the release of the daily fixing.
“We expect the PBOC’s rate cut pace to be smaller than the Fed’s this year, which means the interest rate gap will narrow and capital outflow pressures on the yuan will ease,” said Ding Shuang, chief Greater China economist at Standard Chartered Bank. He forecast a 0.1 percentage point cut from the Chinese central bank in the fourth quarter.
“From this perspective, it will lend support to the yuan.”
