Fed keeps interest rates steady, Fitch delays China rate cut | Wilnesh News

BEIJING – Ratings agency Fitch no longer expects China to cut policy rates this year and postponed expectations of a rate cut until next year as the Federal Reserve keeps interest rates high.

Fitch currently forecasts that China will keep its one-year medium-term lending facility (MLF) unchanged at 2.5% this year and lower it to 2.25% next year. In March, the rating agency predicted one downgrade in 2024.

“There are several factors behind this,” said Jeremy Zook of Fitch Ratings. “First, on the external front, concerns about the dollar exchange rate (the People’s Bank of China) have been dampened by changes in expectations for the Fed. )Performance.

Next year, “as the Fed starts lowering policy rates, we think that should give the People’s Bank of China more room to maneuver,” he said. Zucker expects Beijing to make greater use of fiscal policy this year.

The Federal Reserve kept its key interest rate unchanged last week and said it would cut rates only once before the end of the year. This is in sharp contrast to investor expectations that the Federal Reserve will ease monetary policy soon after raising interest rates sharply in 2024.

USD/USD strengthens as Fed tightens policy RMBThe number is close to re-hitting its 2008 low, according to Wind Information data. The depreciation of the RMB has increased the pressure on capital outflows.

“In addition, there seems to be real concern that bank net interest margins are quite low, which also poses challenges for the People’s Bank of China,” Zucker said. Net Interest Margin (NIM) is a measure of a bank’s profitability because it calculates the difference between the interest a financial institution receives from borrowers and what it must pay out on deposits.

According to official data from Wind Information, China last cut its one-year medium-term lending facility in August 2023.

The People’s Bank of China sets the MLF every month, Use it to guide the benchmark loan offer rate (LPR)is the main reference for financial institutions’ loan interest rates.

According to CNBC, People’s Bank of China Governor Pan Gongsheng said in a speech earlier on Wednesday that monetary policy would remain “supportive” and noted that the yuan exchange rate “remains basically stable under the complex situation.” Chinese transcript.

He pointed out that major developed economies have repeatedly postponed monetary policy changes, and “the interest rate gap between China and the United States is still at a relatively high level.”