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22/07/24
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Fragile Yuan Won’t Be Hurt by China’s Surprise Rate Cuts – Analysts
On Monday, in an attempt to bolster growth, the second-biggest economy in the world, China surprised markets by decreasing a number of major long and short-term interest rates.
According to analysts, the move showed the yuan less of a priority than growth. The currency has all year been undermined by its low yields compared with U.S. rates.
A weakening yuan has been seen as a constraint on the monetary easing efforts of the People’s Bank of China, and investors had generally expected the PBOC would not cut rates until the Federal Reserve had started doing so to prevent additional depreciation pressure and widening the yield gap.
Analysts said Monday’s initial drops in the yuan were merely a knee-jerk reaction, and more weakness would be managed carefully.
The rate cuts were part of the pro-growth policy after last week’s lower-than-expected economic data for the second quarter and echoed the call from the plenum to achieve this year’s growth target of around 5%.
China cut the 1-year loan prime rate, its 7-day reverse repo rate, the cost of standing lending facility, and the 5-year LPR by 0.1% each.
Year-to-date, the yuan has declined 2.4% versus the dollar, and last traded at about 7.2734.
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