PBoC Holds Steady on Rates Despite Growth Risks

Yet, Beijing appears unconcerned about the economic backdrop despite the ongoing effects of US tariffs. The People’s Bank of China (PBoC) kept the one-year and five-year loan prime rates (LPRs) at 3% and 3.5%, respectively, on Monday, September 22. Lower interest rates could boost demand for credit and spending.

According to CN Wire, Goldman Sachs’s economists reacted to comments from PBoC Governor Pan Gongsheng on Monday, September 22, stating:

“The PBoC is likely in no hurry to ease monetary policy, Goldman Sachs’s economic research team says, citing Gov. Pan Gongsheng’s remarks at a joint media briefing with major financial regulators on Monday. ‘His emphasis on balancing financial stability with growth support reinforces our view that policymakers are in no rush to ease and may act later if underlying growth momentum deteriorates,’ GS says in a research report.”

The PBoC may be waiting to see how US-China trade talks play out, with any lifting of tariffs likely to support Beijing’s growth target. On Friday, September 19, President Trump and Chinese President Xi Jinping reportedly had a productive call, discussing various issues ahead of the upcoming APEC Summit.

Ahead of Friday’s call, Trump ended $400 million in military aid for Taiwan. Some analysts viewed the move as a possible concession aimed at facilitating trade talks.

Mainland and Hong Kong Equities Rally

Rising concerns about the economy have tempered demand for Mainland-listed stocks. The CSI 300 and the Shanghai Composite Index are down 0.01% and 1.67%, respectively, month-to-date. By contrast, the Hang Seng Index has gained 4.3%.

Despite September’s pullback, the CSI 300 and the Shanghai Composite Index are up 14.3% and 13.2% year-to-date. While concerns persist about Beijing achieving its 5% GDP growth target, expectations of further policy measures continue to support Mainland equities.

In the absence of further policy support, Mainland and Hong Kong-listed stocks remain exposed to a sharp reversal. US-China trade talks, China’s housing market, cooling demand, and a deteriorating labor market remain key risks.

Still, further stimulus, targeting the housing sector and a US-China trade agreement could lift sentiment. Lower tariffs may revive external demand and ease margin pressures, potentially boosting job hires and domestic demand.