Interest Rate Decisions by the People’s Bank of China, Asia’s Economic Outlook, ECB’s Interest Rate Commentary: What’s Happening in Global Markets?
The interest rate decisions of the People's Bank of China, efforts to maintain the stability of the yuan, and developments in trade relations with the United States are shaping China's steps to maintain balance in the global economic arena. The slowdown in interest rate cuts in Asia, the future of Chinese stocks, and the ECB's independent stance on interest rate policies are having an impact on economic dynamics worldwide.
The People's Bank of China Keeps Interest Rates Steady
Following the interest rate cut in September, the People's Bank of China decided to keep the one-year medium-term lending facility (MLF) rate at 2%. All 14 economists participating in a Bloomberg survey indicated that this outcome was within expectations. Through the MLF, the People's Bank of China provided a total of 900 billion yuan (approximately 124 billion USD) in policy loans, with a net withdrawal of 550 billion yuan in policy loans over the month of November.
Lynn Song, Chief Economist at NG Bank NV, noted that the MLF volume aligned with expectations. She also pointed out that due to reforms in the central bank's monetary policy framework, MLF usage may gradually decline over time.
Determined Stance for Yuan Stability
Liu Ye, an official from the People's Bank of China, stated that the stability of the yuan is ensured by the country's balance of payments, the flexibility of the foreign exchange market, and a robust economic recovery supported by macroeconomic policies. Liu emphasized that it is crucial to prevent the formation of unilateral and collective expectations in the currency market, as well as to mitigate the risks of excessive appreciation of the exchange rate.
Furthermore, it is anticipated that the yuan's exchange rate may exhibit two-way fluctuations due to geopolitical uncertainties and global market volatility. The People's Bank of China will continue to take necessary measures to maintain balance and stability in the foreign exchange market.
China Ready for Economic Cooperation with the US
Wang Shouwen, Deputy Minister of Commerce of China, expressed that China is ready to engage in dialogue to enhance bilateral economic and trade relations with the United States. Wang emphasized that these relations should be based on the principle of mutual respect.
Regarding the likelihood of new tariffs imposed by the incoming US administration, Wang indicated that China would be capable of managing external shocks and expressed confidence that both countries could advance towards a stable and sustainable development trend in their economic relations during a press conference in Beijing.
Interest Rate Cuts in Asia May Slow
Goldman Sachs Group Inc anticipates that Asian central banks will adopt a more cautious approach to interest rate cuts, considering the strengthening of the dollar and the risks of US tariffs. Andrew Tilton, Chief Economist for Asia-Pacific at Goldman Sachs, indicated that the Bank of Korea may pause interest rate cuts during its upcoming meeting. Speaking to Bloomberg television, Tilton noted that the exchange rate is significant for Asian central banks, implying that the pace of interest rate cuts would be slow.
Volatility Expected in Chinese Stocks
UBS Investment Bank Research warned that Chinese stocks might face increasing volatility towards 2025, with a potential 5% decline in the first quarter of the year. Factors such as the likelihood of new US tariffs and delays in domestic policy support were noted as influencing this outlook. UBS highlighted that companies in the Chinese stock market are focusing on the domestic economy, forecasting that internal policy measures and low base effects could lead the markets to finish the year positively.
ECB and Fed Policies May Progress Independently
Francois Villeroy de Galhau, a member of the ECB Governing Council, stated that the ECB will continue to reduce interest rates, and this policy will evolve independently of the Federal Reserve. Villeroy expressed that the ECB will persist in lowering interest rates in response to the decline in inflation.
Tax Increases Impacting Businesses in the UK
The Confederation of British Industry (CBI) announced that the tax increases implemented last month have had an adverse effect on British employers, leading to plans for cuts in investment and employment.
CBI noted that following the tax hikes, employers are inclined to reduce staff levels or lower wage increases due to rising social security contributions.