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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!

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