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🇨🇳 surprise rate cut from china
while the us is struggling with a 8~9% inflation rate: in china, things are quite different at the moment
china’s july cpi turned out to be 2.7%, slightly lower than the 2.9% estimate
while this may feel like good news, it’s a sign and proof of weak demand in the chinese economy, as many worried
currently, the chinese economy is struggling with:
renewed (and still very strict) covid lockdowns that are leading the economy to lose steam
major property developers defaulting, leading to major liquidity crisis in the housing markets
to make things worse (and it doesn’t end here but i’ll stop), frustrated homebuyers are protesting by not paying their mortgages
so, on monday, the chinese central bank announced: short-term liquidity lending rates to be reduced from 2.1% to 2% and the one-year rate to be reduced from 2.85 to 2.75%
imo:
it’s no secret that overall demand’s been down in china for a while, and the continued lockdowns (more than covid itself) isn’t helping china either
it will be very hard to overcome the current environment with a minimal reduction in rates, although that still was surprising for the market, as pboc (chinese central bank) has been adamant in not reducing rates for a while
and, pboc won’t feel comfortable with a series of rate cuts, as that would make the renminbi even more unattractive relative to, say, the us dollar
for reference: the cny/usd currency pair is 6.3% year-to-date (1 renminbi could buy 0.1573 usd in january, not it can only buy 0.1474 usd)
hope today’s topic was interesting to y’all!
💡 something im thinking about
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as always, i am no financial advisor! (i am no substitute for professional financial services)