§ PBOC
cut interest rate for the third time, lowering 1-year lending rate and deposit
rate by 25bps each to 5.10% and 2.25% respectively. Deposit ceiling was
lifted to 150% of the benchmark.
§
The latest rate cut and its
timing underscore the downward pressure that the economy is facing and the
urgency that the PBOC sees to lend support. Looking forward, interest rate
would have to be lowered further to bring down borrowing cost in the money
market and real cost of funding is kept elevated by the weak price pressures
at the moment.
§
USD/CNY did not react much to the
news, as we expected, hovering around the 6.20-figure. We stick to our view
that PBOC will continue to keep the CNY strong, if not steady against its
major trading partners. A strong yuan will align with the government’s
endeavors to have CNY included in the IMF SDR basket as well as mitigate
capital outflow from the fragile economy.
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