PBoC Cuts Benchmark Mortgage Rate To Boost Property Market

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In terms of financial data releases this week will be light while US markets remained closed on Monday due to the President Day bank holiday.

The People’s Bank of China (PBoC) surprised market analysts, delivering an unprecedented 5-year loan prime rate cut as it tries to revive the country’s struggling economy.

In Australia, the Reserve Bank of Australia (RBA) meeting minutes showed that its governing board debated whether to hike rates by 25 basis points or keep them on hold. The RBA’s policymakers also mentioned that recent data showed inflation could return to target in a reasonable timeframe.

China PBoC Cuts 5-Year LPR

Earlier today, the PBoC cut its five-year loan prime rate (LPR) by 25 basis points in order to support the real estate market. The announced reduction surpassed expectations and it is the largest since 2019. Most analysts polled Reuters had expected a five to fifteen basis points cut.

The PBoC board kept the one-year Medium-term Lending Facility (MLF) rate steady at 2.50% on Sunday. The decision was largely expected as a Reuters poll  published on February 8th had indicated with 7 out of 10 economists suggesting that China’s cental bank would be keen to maintain currency stability.

ING analysts wrote in a report that “given the RMB depreciation pressure amid unfavourable interest rate spreads, we saw limited room for maneuver before global central banks shifted toward rate cuts. While single-sided LPR cuts have occurred in the past, it was always the 1-year rate that was cut while the 5-year rate was maintained.”

Canada CPI Inflation January 2024

The Canadian CPI inflation reports coming from Statistics Canada and the Bank of Canada are expected to shed some light on the condition of the country’s economy. Economists suggest that the Statistics Canada report for the month of January will reveal a figure close to 3.2% on an annualised basis, showing a decrease when compared with December.

The Bank of Canada has noted that while inflation seems to be tamed, there are still lingering risks, and inflation has proven to be persistent. The BoC has shifted its focus in regard to borrowing costs as now it seeks to determine for how long it would have to keep rates at the current level. The BoC’s head, Tiff Macklem, has said he  wouldn’t put a specific number on what level of core inflation would prompt a lowering of the benchmark interest rate from the current 5.00%.

In the last monetary policy meeting, Macklem noted that “what I’ve emphasized is underlying inflation is more of a concept than a measure. We’re looking for continued evidence that inflationary pressures are easing and we’re looking for clear downward momentum.”

Ex-BoE Chief Economist: BoE Risks Deepening UK’s Recession

Andy Haldane, BoE’s ex chief economist, said that the UK’s central bank would risk deepening the current recession  if it wouldn’t proceed with cutting interest rates. “I think that’s where the balance of risks lies, yes. For me the case for putting in place some upfront, early insurance on the monetary policy side is strong and strengthening, and I’m fearful we leave that insurance a little too late in the year,” Haldane said in his remarks.

In its last meeting, the BoE’s Monetary Policy Committee (MPC) kept borrowing costs on hold with one of its members voting in favour of a rate cut and two voting in favour of a hike. Andy Haldane noted that “it’s one thing to have missed inflation on the way up, which happened; it’s quite another to then have crushed the economy on the way down. That double blow to credibility is one, if I were a central banker in my old job, I would be looking to avoid.”

Bundesbank Suggests Technical Recession Could Hit Germany

The German central bank warned that the economy could shrink again in the first quarter of 2024, bringing technical recession one step closer. German economic growth took a hit in the fourth quarter of 2023 with Bundesbank’s analysts suggesting that there are no signs of recovery, yet as cautious consumer spending and low foreign industrial demand seem to play a significant role.

The Bundesbank report noted that “while this would mean the ongoing period of weakness in the German economy following the start of the Russian war of aggression against Ukraine would continue, there is still no evidence of a recession in the sense of a persistent, broad-based and distinct drop in economic activity, nor is such a recession currently on the cards.”

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