BCA Research provided insights into the expected monetary policy actions by central banks in China and the United States. The research firm expects the Chinese authorities to cut interest rates on existing mortgages, while Federal Reserve is expected to start a monetary easing cycle.
According to BCA Research, a potential 100 basis point cut in Chinese mortgage rates could save homeowners in China about 300 billion RMB ($44.7 billion) per year in interest payments.
Despite these potential savings, BCA Research suggests that the impact on the broader Chinese economy will be limited. The company notes that low consumption is likely to continue due to factors such as weak labor market prospects, slow income growth, and households’ reluctance to take on new debt.
BCA Research also commented on the recent appreciation of the Chinese yuan (RMB), considering it unsustainable over the next six months. The company believes that even with Federal Reserve easing, the U.S. economy is unlikely to be steered away from recession. In this context, BCA Research sees the US dollar as a counter-cyclical currency and is expected to rebound.
Looking ahead, BCA Research predicts that the U.S. recession will develop into a contraction in global trade by early 2025. The company points to the vulnerability of the Chinese economy to such a contraction, which could negatively affect the value of the Chinese yuan.
Moreover, BCA Research expects China to continue to face deflationary pressures or low inflation, requiring the central bank to keep interest rates low. This low interest rate environment coupled with modest growth is expected to curb any significant appreciation of the Chinese yuan against the US dollar.
This article was translated with the help of an artificial intelligence program after an editor’s review. For more details please refer to Banha Terms and Conditions
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