Equities rose in Asia after the People’s Bank of China cut its medium-term policy rate in the face of slowing economic growth and the US Federal Reserve kept interest rates stable.
The Hang Seng China Enterprises Index, which tracks Chinese companies listed in Hong Kong, rose 1.4 percent and the CSI 300 of Shanghai and Shenzhen-listed stocks gained 0.5 percent. The Japanese Topix rose 0.4 percent and the Australian S&P/ASX 200 rose 0.3 percent.
The gains came after the PBoC cut its medium-term lending rate by 0.1 percentage point to 2.65 percent, after lowering its seven-day lending rate by the same amount earlier this week, marking the first step in boosting short-term rates. liquidity in the country’s interbank market in nine months.
Data released in conjunction with the announcement underlined the slowing pace of China’s economic recovery. Growth in industrial production and retail sales fell short of economists’ expectations, while the rate of contraction in real estate investment and sales also worsened in May.
In foreign exchange markets, the renminbi weakened as much as 0.3 percent against the dollar to Rmb7.1807 following the central bank’s cut, taking the currency about 4 percent lower against the dollar for the year to date and to a new six-month low.
Analysts were skeptical that the cut in medium-term rates, which serves as a floor for China’s key prime loan rate, would be enough to get growth back on track.
“The underlying narrative on the economy is extremely disappointing at the moment,” said Robert Carnell, head of Asia-Pacific research at ING. He said the renminbi could weaken to Rmb7.2 against the dollar “in days” and that policymakers would view a weaker currency “as one of the policy tools they will have to lean on to help the economy”.
Gains in Asia followed a choppy day on Wall Street, where the benchmark S&P 500 ended 0.1 percent higher and the tech-focused Nasdaq Composite rose 0.4 percent following the Fed’s long-anticipated decision to cut Federal Funds rates on Tuesday. to leave untouched.
But the pause at a range of 5 to 5.25 percent, following a series of rate hikes over the course of 14 months, coincided with forecasts from Fed officials who said most policymakers expect two more quarter-point hikes this year.
ANZ economist Brian Martin described the Fed’s decision as a “hawkish leap”, noting that while “there are some encouraging signs that inflation intensity is easing, it is much too early to conclude that inflation is too defeated.” amid a still strong labor market”.
The aggressive outlook supported the dollar in Asian trading, with the dollar index tracking the US currency against a basket of other currencies, rising 0.3 percent.
Futures markets tipped the S&P 500 to open flat later in the day, while the FTSE 100 was expected to lose 0.3 percent at the start of London trading.