The slowdown in activity in China forces a surprise rate cut – elEconomista

Since the end of last year, China has been in the focus of analysts and investors due to the problems that the country’s economy was suffering. It was the first to suffer from the pandemic, and also the first to emerge from the first economic impact generated by the lockdowns, in addition to having to deal with a debt crisis in the real estate sector, an important segment for the country’s economy. Now it has become the first to be seriously affected by a halt in economic activity, on several fronts, which has forced the People’s Bank of China, the country’s central bank, to cut interest rates to try to give a boost to growth. The agency has reduced this weekend by 10 basis points the types of 7-day operations, to 1.33%, and another 10 basis points the rates of the marginal credit facility, two movements with which it will try to reduce the slowdown economic. On this front, China has a great advantage compared to other economies, such as the United States or Europe, and that is that, until now, it is having to deal with a much lower increase in inflation than the one that is consolidating in the rest of the world. world. At the end of June, the increase in the CPI in the Asian giant was 2.7%, something that, at least for the moment, is not excessively worrying. Latest Troubles “China’s overnight economic data was very disappointing, to put it mildly. Combined with Friday’s lending numbers, it doesn’t paint a good picture of domestic demand and growth prospects,” said Craig Erlam, senior analyst at Oanda. Economic problems have arisen on three fronts: investment, industrial production, and unemployment. In the first case, investment in the country’s debt market grew during the first seven months of the year at 5.7% year-on-year, below analysts’ forecasts of 6.2%. The real estate market also gave bad signs, with a contraction in the same period of 6.4%. On the unemployment front, China is being forced to deal with a worrying increase in the youth unemployment rate, which has reached 19.9% ​​among the population between 16 and 24 years of age. It is the highest rate that has been reached in history, and it occurs at a particularly inopportune moment for the government, since this year the 20th Congress of the Communist Party of the country will be held, which is speculated to be held between the months of October and November. The fear of a slowdown in the Chinese economy like the one that has occurred has been making itself felt in the markets for months. The prices of industrial metals, for example, fall in 2022, in contrast to a 2021 of strong increases for practically all the raw materials on the market. It is also possible that the government is regretting having begun, as it has in recent months, a campaign to tighten regulation for some business sectors in the country, such as technology, which has suffered a severe setback from the regulators and has also become an important engine for the country’s economy. Impact on the markets The surprise rate cut by the Chinese central bank has not been a bad thing for investors in the country’s debt. Naturally, the benchmark Chinese bond, with a maturity of 10 years, has reacted to purchases by investors, who are adapting to the new reality of interest rates. The return to maturity of the Chinese bond has gone from 2.74% where it closed on Friday, to 2.66% in a single session, a new minimum return not seen since 2020, at the worst moment of the covid pandemic. And we must not forget that a fall in bond yields implies increases in the price of the title. “The interest rate cut is a sign that the Chinese central bank is prioritizing growth, rather than trying to reduce debt,” said Carie Li, global markets strategist at DBS Bank. “The interest rate on the 10-year bond could fall to 2.6% in the medium term,” she notes, noting how “we may start to see some demand for Chinese bonds from international investors with the intention of to diversify”. As for the yuan, it remained relatively stable against the US dollar during the day, with a drop that reached -0.48%, later stabilizing at 6.77 yuan per dollar, with a decrease during the session of 0 ,4%. comments0WhatsAppFacebookTwitterLinkedin