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  • China cuts 1-year loan prime rate by 10 bps, 5-year loan prime rate by 5 bps.
  • USD/CNY spikes from 6.9975 to 7.0092.
  • AUD/USD prints fresh lows to 0.6652. 

As widely expected, the People’s Bank of China, PBoC, have responded to the coronavirus and have reduced the country’s benchmark loan prime rate (LPR) to lower borrowing costs and ease financial strains on companies hit by the virus epidemic.

The People’s Bank of China interest rate decision

  • China sets 1-year loan prime rate at 4.05% vs 4.15% a month earlier.
  • China sets 5-year loan prime rate at 4.75% vs 4.80% a month earlier.

Editor’s note

USD/CNY spikes from 6.9975 to 7.0092.  Prior to the decision, according to a survey of traders and analysts conducted by Reuters on Wednesday, it was expected that the PBoC would cut its benchmark interest rate. All 51 respondents in the snap survey expected a reduction in the loan prime rate (LPR) at the central bank’s monthly fixing. Among them, 38 respondents, or about 75% of participants, expected both the one-y

This follows a cut to the medium-term lending that was made on Monday as policymakers sought to ease the drag to the businesses from a coronavirus outbreak that has severely disrupted activity. The cut helped Chinese stock markets rally, which in turn lent support to other Asian bourses.

Description

The PBoC Interest Rate Decision is announced by the People´s Bank of China. If the PBoC is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the CNY. Likewise, if the PBoC has a dovish view on the Chinese economy and keeps the ongoing interest rate, or cuts the interest rate it is negative, or bearish.

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