BCA Research provides insights into expected monetary policy actions by central banks in China and the United States. The research firm expects Chinese authorities to cut interest rates on existing mortgage loans, while the Federal Reserve is expected to begin a monetary easing cycle.
According to BCA Research, a 100 basis point cut in mortgage rates in China could save homeowners in China nearly 300 billion yuan ($44.7 billion) a year in interest payments.
Despite these potential savings, BCA Research notes that the impact on China’s broader economy will be limited. The firm notes that weak consumption is likely to persist due to factors such as weak labor market prospects, slowing income growth and household reluctance to take on new debt.
BCA Research also commented on the recent appreciation of the renminbi, considering it unsustainable over the next six months. The firm believes that even with the Fed easing monetary policy, the US economy is unlikely to move 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 expects the US recession to evolve into a global trade contraction by early 2025. The firm points to the vulnerability of the Chinese economy to such a downturn, which could weigh on the value of the renminbi.
Moreover, BCA Research expects China to continue to face deflationary or disinflationary pressures, forcing the central bank to keep interest rates low. The low interest rate environment coupled with modest growth is expected to curb any significant appreciation of the Chinese yuan against the US dollar.
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