Chinese yuan under pressure from medium-term lending cuts: strategist


RMB banknotes were arranged for photography in Hong Kong on July 3, 2018.

S3studio | Getty Images News | Getty Images

China’s central bank unexpectedly lowered lending rates on Monday, according to one analyst. This is likely to put further downward pressure on the Chinese currency.

“What happened this morning doesn’t help [Chinese yuan’s] case. Gareth Berry, a Forex strategist at Macquarie Group, told CNBC on Monday that it could push the range up to 6.55 yuan per dollar.

The Chinese yuan on Monday is currently trading at around 6.34 per dollar.

The central bank of China has announced that it will reduce the interest rate of the one-year medium-term loan facility (MLF) loan worth 700 billion yuan ($ 110 billion) to 2.85% in order to boost the economy. This is 10 basis points lower. According to Reuters.

The People’s Bank of China lowered MLF interest rates for the first time since April 2020.

Jiwei Chang, chief economist at Pinpoint Asset Management, said the rate cut was in line with market expectations, but it also shows that Chinese policymakers are concerned about economic growth. Stated.

“Economic growth is clearly under pressure, and the recent outbreak of Omicron in China has exacerbated downside risks. Lower inflation has opened up room for policy. China has opened up room for policy. I think we are in the early stages of the rate cut cycle. “

The central bank has also reduced the 7-day repurchase rate, which is another lending measure. PBOC has also injected an additional 200 billion yuan in medium-term cash into the financial system.

Zhang predicted that reserve requirements and interest rates would be further reduced in the first half of this year. Reserve deposits are the amount a bank must hold as a reserve in a central bank.

“Omicron outbreaks are the greatest risk in China,” he said.

“I think the risk to GDP growth in the first quarter has turned down. The rate cut itself is a small step in the right direction,” he added, referring to Monday’s policy lending rate cut. — “”However, the economic outlook depends heavily on how effectively the outbreak can be contained. “

On monday, China The economy grew 8.1% year-on-year in 2021, According to official data from the National Bureau of Statistics. Fourth-quarter GDP was up 4% from a year ago, faster than analysts expected.

… policymakers are now much more concerned about growth and should see coordinated action in the future.

Johann Nature

City Global Markets Asia

China’s Zero-COVID policy aimed at limiting the outbreak of viruses, Prompted a renewed travel ban in the country, including Blockade of Xian City In late December.

An MLF rate cut of 10 basis points, which is higher than expected, seems to indicate that China is concerned about a slowdown, said Johann Nature, Head of Asian Economy and Strategy at City Global Markets Asia, CNBC. of”Street sign asia” on Monday.

“I think this really suggests, but policymakers are now more interested in growth and should see coordinated action in the future.”

She said the country is unlikely to abandon its Zero-COVID policy soon.

— CNBC’s Evelyn Cheng contributed to the story

Read more about China from CNBC Pro

Chinese yuan under pressure from medium-term lending cuts: strategist

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