PBOC not Cutting Rates Now, but Leaves the Door Open

Posted Tuesday, July 23, 2019 by
Skerdian Meta • 1 min read

China has been messing with its currency Yuan for quitee some time. In 2014 [[USD/CNY]] stood at around 6, meaning 6 Yuan for $1. But they kept easing and USD/CNY climbed to 7 until the beginning of 2017 when Donald Trump took the post of the US President. Currency “manipulation” from other countries was one of the main issues in Trump’s presidential campaign.

Once Trump came to power, USD/CNY fell to 6 again, which took place during 2017. But in 2018 the price surged again to 7, which is one of the problems in the US-China trade war. China has promised to not mess with the exchange rate anymore, but this pair remains at elevated levels.

The People’s Bank of China Governor Yi Gang was commenting a while ago on this issue. Here are the comments:

  • Current interest rates are appropriate
  • Any rate decision is to be based on China’s situation
  • China’s inflation trend is mild
  • Any rate cut will be aimed towards coping with deflation risk

That last comment should get Trump’s attention; we’ll see if he will tweet about it when he wakes up. Trump did tweet yesterday about how the FED has been tightening the monetary policy while other countries are pumping money and weakening their currencies. The US trade team will head to China next week and many people are expecting a trade deal at last, but this might be a problem. Although the PBOC are not cutting rates for now, they might do so later.

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