Meanwhile, a completely different story arises from the People’s Republic of China. It was reported in Financial Times few days back that The People’s Bank of China (PBOC), their Central Bank, has decided to adjust mortgage rates downward, to rescue property development across all of China. This decision was no less firm than the one the US Fed made . It is the same resolute strategy that seems to be the name of the game central banks play nowadays. The following steps have been decided by PBOC recently: First, reducing 5-year prime mortgage rate from 4.45 per cent to 4.30 per cent, and at the same time shaving prime rate loans (PRLs) from 3.7 per cent to 3.65 per cent. In addition, PBOC also provides emergency loans to property developers to help them forestall bankruptcy.
Question would be how long PBOC should be doing these for achieving the normality. The Fed was firmed in saying that the policy would last for quite a while. Unfortunately I do not have any report yet from the PBOC as to how long will these policies be implemented. My best guess says that this will last for a while as well, just like what would be happening in the US. For China economy the issue is even more significant since the problem with the property is more dire as this sector constitutes one third of its GDP. The challenge facing the monetary authorities is the reverse, for the US it is one of achieving price stability with moderate growth. And for China, it is to calm down the property sector that was growing so fast in the past, when it experienced double-digit growth, to a new normal of moderate progress while accepting that the double-digit growth is only history. In both cases, the culprit is the demand side: too strong in the US and too weak property demand in China.
Very briefly about the others
For sure it is more difficult to analyze the path development of the economy and then determine the monetary policy needed to support it. Europe must deal with how to react to the Russia-Ukraine war first, before each country can concentrate on their respective economy.