The Day at a Glance | Jun 20 2022

The Top

*Interest rate in China remains unchanged in light of economic recovery after quarantine measures.

*Risks of a recession have increased and inflation could be high for several years before decreasing to 2%: Loretta Mester, Cleveland FED.

*China logs record crude oil imports from Russia during May.

*Martins Kazaks and Olli Rehn, members of the ECB, reaffirmed the bank`s commitment to avoid volatility in sovereign debt markets in Europe.

*Gustavo Petro will be the first leftist President in Colombia; Emmanuel Macron loses majority in parliamentary elections in France.

Economic environment

No stimulus in China. China`s main interest rates remained unchanged on Monday as the economy starts its recovery process after quarantine measures were carried out in previous months and the world`s less accommodative monetary policy limits the Popular Bank of China to stimulate a recovery. One and five-year preferential bank loan rates  remained at 3.7% and 4.45%, respectively. Five year rates logged a record 15bp decrease last month, but there hasn`t been any reduction in the cost of money this month. These interest rates are defined by 18 of the country`s banks, which move in tandem with the Popular Bank of China`s Medium-Term Facility Rate. The central bank has tried to limit monetary stimulus due to fears of creating a wide divergence with respect to the FED`s monetary policy, which could cause capital outflows and a greater devaluation of the Yuan. In the last 4 months outflows worth 143 billion Yuan were logged in foreign investments in China`s sovereign debt markets, the largest outflow since records exist (2014). The Popular Bank of China finds itself in a complicated position; it needs to avoid capital outflows while stimulating credit in its domestic market to back an economic recovery after recent COVID-19 waves and avoid a crisis in the real-estate sector, which hasn’t stopped getting worse. The central bank has opted for focalized measures to back small companies, reducing capital requirements for banks and promoting credit – only in the real-estate market; but it hasn’t announced any general stimulus. During July, the Political Bureau of China`s Communist Party will discuss the need of further fiscal and monetary actions in order to reach its growth target in 2022.