China is expected to maintain a stable approach to interest rates

20 Nov, 2023

China is expected to maintain a stable approach to interest rates

In the upcoming Asian market session, the spotlight will be on China's latest interest rate decision, with additional attention on Thailand's third-quarter GDP and trade figures from Malaysia and Taiwan. Trading activity this week is anticipated to be lighter due to the U.S. Thanksgiving holiday, but market sentiment remains robust, buoyed by a general relaxation of financial conditions.

Global bond yields, particularly led by Treasury yields, are declining as inflationary pressures ease, economic activity moderates, and oil prices experience a downturn.

Despite some fluctuations in bond market volatility, equity and currency markets exhibit stability. Last week witnessed a positive trend, with world stocks, Wall Street, and Japan's Nikkei marking their third consecutive weekly gains, while Asia ex-Japan surged by 3%. Notably, China's CSI300 index experienced its first decline in four weeks.

On Monday, the People's Bank of China is widely anticipated to maintain current lending benchmark rates. In a Reuters poll, all 26 market watchers expect the one-year and five-year loan prime rates to remain steady at 3.45% and 4.20%, respectively. While there is a consensus among economists that China's economy could benefit from additional stimulus, concerns arise about potential impacts on the yuan and the risk of increased capital outflows.

Goldman Sachs analysts report net FX outflows of $41 billion in October, a decline from $75 billion in September. This highlights the significance of Beijing's policy decisions, as long as the interest rate spread favors the Chinese yuan, mitigating persistent outflows.

Despite challenges, Chinese authorities are resolute in supporting the yuan and preventing it from breaching the 7.30 per dollar level. Their efforts have shown results, with the dollar dipping below 7.21 yuan for the first time in three months on Friday.

Additionally, Monday brings expectations for Thailand's third-quarter GDP to reveal a 2.4% annual growth rate, up from 1.8% in the previous quarter, driven by exports and tourism. Looking ahead, the Reserve Bank of Australia will release minutes from its Nov. 7 policy meeting, and Bank Indonesia is likely to maintain its key interest rate at 6.00%.

The week's pivotal release comes on Friday with Japan's consumer price inflation data. Forecasted to rise to 3.0% in October from the previous month's 2.8%, this data could have critical implications for the Bank of Japan's policy decisions.