With Fed rate cut opening the door, China likely to ease as economic issues grow: analysts

An interest-rate cut by the US Federal Reserve could give China room to ease its monetary policy and reduce capital outflow risks for the world’s second-largest economy, according to analysts.

And although an interest rate cut by China may not be imminent, a cut in the reserve requirement ratio (RRR) – the amount of cash that commercial banks must hold as reserves – may be more preferred, they added.

Markets widely expect the US central bank to lower its benchmark borrowing rate by at least 25 basis points from its 5.25-5.5 per cent range when its Federal Open Market Committee convenes this week.

The People’s Bank of China has been widely seen as refraining from cutting interest rates as the differential with the United States, and the impact of low rates on China’s banks, represent major concerns for the central bank.

But with the US Federal Reserve rate cut opening the door, and persistently weak domestic economic activities, calls for more easing, including rate cuts, have grown.