Room for China’s Easing Monetary Policy After US Rate Slash

In recent months, the Us-sino trade war has been worsening. Should the friction escalate consistently, the global economy could experience a recession in the short- to mid-term. To avoid further economic slowdown, the market expects another one or two more rate cuts this year, since the United States had its interest rate slashed in late July. Moreover, several central banks around the world have also joined the rate cut, including India, Australia, New Zealand, Malaysia, and the Philippines’ central bank. Whether the mainland’s central bank will follow such interest rate cuts, and its consequent impacts, has recently become a topic of concern for home buyers.

It is well known that after the US entered the interest rate hike cycle in December 2015, the People’s Bank of China only stimulated the interest rate increase by fine-tuning the open market and policy interest rates, and did not follow the US interest rate hikes. However, in response to the impact of the Us-sino trade war, the PBOC has lowered the deposit reserve ratio and targeted interest rate cuts, and the fund interest rate has begun to edge down. The US recently stopped the rate hike cycle and started the interest rate cut cycle, which is expected to provide space for China's loose monetary policy later on.

In order to support small- and medium-sized enterprises as well as the economy at large, China's monetary policy has adopted the medium-term loan facility convenience since 2018, and implemented preferential interest rates, which equates to cutting interest rates. After the PBOC repeatedly cut interest rates, the mainland property market began to pick up after the Lunar New Year. Some cities have begun to tighten control policies, and the floating mortgage interest rate has cooled the overheated property market in some hot cities. At present, the downward pressure on the economy is relatively high. The PBOC may follow interest rate cuts in the future but the decline may not be too consistent, thus demonstrating the independence of the PBOC'S monetary policy. It is believed that in the next six months, the focus in the overall property market will be on tightening policies, and banks will tighten mortgage loans in some areas of China. As such, property price increases should continue to narrow. However, with the adjustment of various policies and the smooth transition period of the market, the property market's regulation policy in the fourth quarter may yet be fine-tuned.