BCA Research has provided insight into the expected monetary policy actions of central banks in China and the United States. The research firm expects Chinese authorities to cut interest rates on existing mortgages, while the Federal Reserve is likely to begin a cycle of monetary easing.

A potential 100 basis point cut in Chinese mortgage interest rates could save Chinese homeowners around RMB300 billion ($44.7 billion) a year in interest, according to BCA Research.

Despite these potential savings, BCA Research suggests the impact on China’s broader economy will be constrained. The firm points out that subdued consumption is likely to persist due to factors including a faint labor market outlook, slower income growth and households’ reluctance to take on up-to-date debt.

BCA Research also commented on the recent rise in the value of the (RMB), calling it unsustainable over the next six months. The firm believes that even with the Federal Reserve easing policy, the US economy is unlikely to be pulled out of recession. In this context, BCA Research sees the US dollar as a countercyclical currency that is likely to bounce back.

Looking ahead, BCA Research predicts that the US recession could turn into a global trade slump in early 2025. The firm points to the vulnerability of the Chinese economy to such a crisis, which could negatively impact the value of the RMB.

In addition, BCA Research forecasts that China will continue to experience deflationary or deflationary pressures, which will force the central bank to keep interest rates low. This low-interest-rate environment combined with modest growth is expected to deter any significant appreciation of the Chinese yuan against the U.S. dollar.

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