China on the horns of a Fed rate cut dilemma

The People’s Bank of China (PBoC) faces a crucial policy dilemma as it weighs following the US with significant monetary easing to tamp down an appreciation of the yuan while seeking to avoid crimping Chinese bank profits.

The US Federal Reserve lowered its key lending rate by 0.5 percentage points to 4.75% to 5% on Wednesday, marking the first easing in the US since 2019. The cut was bigger than the usual reduction of 0.25 percentage points as Fed Chair Jerome Powell said high borrowing costs, put in place to fight inflation, should not end up hurting the US economy.

Powell said more rate cuts can be expected in the coming months and that the pace of the easing will accelerate if the economy is weak and slow if it’s strong.