BCA Research provided insight into expected monetary policy measures from 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 forecast to begin its monetary easing cycle.
According to BCA Research, a potential 100 basis point cut in Chinese mortgage rates could save homeowners in China about RMB300 billion ($44.7 billion) in interest payments annually.
Despite these potential savings, BCA Research suggests the impact on China’s broader economy would be limited. The company notes that subdued consumption is likely to continue due to factors such as weak labor market prospects, slower income growth and households’ reluctance to take on new debt.
BCA Research also commented on the (RMB)’s recent appreciation, deeming it unsustainable over the next six months. The company believes that even with the Federal Reserve’s easing, the US economy is unlikely to be kept away from recession. In this context, BCA Research views the US dollar as a countercyclical currency that is expected to recover.
Looking ahead, BCA Research expects that a recession in the US could result in a contraction in global trade in early 2025. The company points to China’s economic vulnerability to such a downturn, which could negatively impact the value of the RMB.
In addition, BCA Research predicts that China will continue to experience disinflationary or deflationary pressures, requiring the central bank to keep policy rates low. This low interest rate environment combined with modest growth is expected to dampen significant appreciation of the Chinese yuan against the US dollar.
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