China cuts benchmark loan rate for first time in almost 2 years amid mounting economic pressures
Comment of the Day

December 20 2021

Commentary by Eoin Treacy

China cuts benchmark loan rate for first time in almost 2 years amid mounting economic pressures

This article from the South China Morning Post may be of interest to subscribers. Here is a section:

Last week, an influential Chinese think tank said China should lower interest rates and boost infrastructure investment to ensure the economy will grow by at least 5 per cent next year.

China’s year-on-year economic growth is expected to drop below 4 per cent in the fourth quarter of 2021, way down from a 18.3 per cent rise in the first quarter.

The fast decline has fuelled concerns of an economic hard landing, triggering calls for more supportive measures.

“We expect a further 45 basis point of cuts to the one-year LPR during 2022. Just as important is what happens to quantitative controls on credit, including on borrowing by local governments. Early signs are these will be relaxed, but not greatly,” added Williams.

“The overall impression, including from [Monday’s] announcement, is that policy is being eased but not dramatically.”

Eoin Treacy's view

Capital is both global and mobile. It flows to the most attractive assets and helps to create bull markets. From the beginning of the pandemic until now, there has been nothing to worry about in terms of the supply of capital and liquidity. The big question for 2022 is where will the liquidity come from to continue to support bull markets.

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