Beijing embraces the policy of rigor inaugurated by Federal Reserve in the last meeting of the year, in which he announced a more cautious approach in the path of normalization of interest rates and signaled fewer rate cuts for 2025. An approach also shared by the Bank of England and the Bank of Japan, which left interest rates unchanged, and now by People Bank of China (PBOC)which has loan rates confirmedclosing the central banks week with some more worries for the markets.
PBOC decisions
China’s central bank announced today that it has main reference rates kept unchanged on loans (LPR), confirming the 1 year one at 3.1% and the 5 year one at 3.6%. A decision widely awaited by the markets. It should be noted that the first rate (one year) is usually a reference for loans to businesses and families, while the longer one (five years) is considered a benchmark for mortgage loans.
In this way, the Chinese central bank he is trying to find a way to compromise between him stimulate demand and economic growth ed alleviate the insistent pressure on the yuan. The economic meeting of the Communist Party, held in December, confirmed the desire to support an expansionary monetary policy and therefore further cuts in interest rates, to revitalize weak internal demand, but support in the fiscal sphere is more likely than monetary in this phase.
The path indicated by the Fed
The Chinese central bank’s decision came on the heels of a 25 basis point rate cut announced by China Federal Reserve Wednesday evening. A Fed that, despite having reduced rates in this last meeting of the year, appeared more “hawkish” and less inclined to cut interest rates. They are now expected in 2025 only two moderate cutscompared to the four cuts previously expected, until the September meeting. Analysts say the Fed’s revised outlook on rates is unlikely to have a huge influence on the trajectory of China’s monetary policy, but it could put further pressure on the yuan.
Bank of England more hawkish
The Bank of England anticipated a hawkish turn of the Fed and, due to excessively high inflation and wage growth, was forced to maintain interest rates on a higher level, at 4.75%. Nothing has been done, therefore, for the last meeting of the year, which is discounted by a new surge in inflation to a rate of 2.6% and the prospect of further increases, in response to wage growth which remains very high.
The Bank of Japan follows the wave
Even the Bank of Japan decided this week to leave i interest rates unchanged at 0.25%, stating that the Japanese economy “has recovered moderately, although some weakness has been noted in part,” while it is expected that inflation will gradually increase in the medium and long term, thanks also to the virtuous circle between wages and prices. Regarding risks to the outlook, the BoJ said that high uncertainties remain on economic activity and prices, including developments in the international economy and commodity prices.
