China Seen Holding the Medium-Term Rate Steady Despite Growing Economic Gloom

  • China's central bank is widely expected to pause its monetary easing efforts and keep the medium-term policy rate steady this month, a Reuters survey showed, as widening policy divergence with the Federal Reserve could put further pressure on the Chinese yuan and risk capital outflows.
  • The People's Bank of China (PBOC) surprised markets in August by lowering key interest rates to revive credit demand and prop up a slowing economy hurt by COVID-19 shocks.
  • But the policy divergence with most other major economies, which are raising interest rates aggressively to combat high inflation, has pressured the yuan, which fell more than 3% against the dollar since mid-August to near the psychologically important ¥7 mark.
  • Xie, along with some market traders, noted that inflationary pressures in China were very low by global standards, allowing the PBOC more room to manoeuvre on monetary policy if needed.

(Source: Reuters)