China Cuts Its Short-Term Lending Rate Amid Economic Slowdown
To counter the economic slowdown in the country, China's central bank recently lowered the short-term borrowing rate. This is the first time in more than ten months that such a move by the PBoC was taken!
According to experts, China has taken these measures to improve the market confidence. In addition, China is also planning to add some spark to its post-pandemic recovery, which has slowed down recently.
Long-Term Lending Rates Also Expected To Go Down
The reduction in the short-term lending rates is an indication that the same easing is coming for the long-term rates as well. According to sources, this could happen during the next week at best since the investor sentiment is already negative.
In addition, the demand in the Chinese economy is also down, which is yet another reason to lower the lending rates. Furthermore, the need for stimulus measures is also rising, considering the current state of the Chinese economy.
Overall, the reverse repo rate (7 days) was lowered by 10 points by the PBoC, which took it to 1.90% from an earlier value of 2.00%. Another worthy development was the infection of 2 billion yuan via short-term bonds.
According to Mizuho Bank strategies, the recent decision by the PBoC was not a surprise at all for the markets. If we look around, the deposit rates have already been lowered by the commercial banks.
After the news, the Chinese Yuan was last seen trading at 0.71680 (a 6-month low) while the 10-year Chinese bonds also dropped to 7.5 months low.
The timing of this move is also very paramount as the Fed's meeting is also due within a few days. Once the Fed's policy becomes clear, the USD/CNY trading pair will find its next direction.
While the rest of the world is now moving towards high-interest rates, it appears that China remains an outlier with its accommodative policy.