China’s central bank lowered a short-term lending rate for the first time in 10 months on Tuesday, in a bid to restore market confidence and prop up a stalling post-pandemic recovery in the world’s second-largest economy. | Reuters
“Commercial banks have already lowered deposit rates, and PBOC governor Yi Gang also mentioned strengthening counter-cyclical adjustment recently.”He added that the PBOC may have wanted to soften the impact of future policy easing on the Chinese yuan ahead of the Federal Reserve’s policy meeting this week.
An interest rate cut in China could further widen the yield gap with the United States, even if the Fed pauses this month.The yuan eased to 7.1646 per dollar after the rate decision, the weakest since Nov. 29, 2022. “The 10bp cut in the open market operations reverse repo rate can be seen as a precursor to a MLF rate cut this Thursday,” said Frances Cheung, rates strategist at OCBC Bank.“Rates may continue to trade on the soft side but given much economic pessimism and a rate cut are already in the price, we see limited downside to rates from here.”
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