China’s central bank PBOC cut a key short-term policy rate, the seven-day reverse repurchase rate, by -10bps from 2% to 1.9%. The policy change is anticipated to infuse an additional CNY 2B of liquidity into the economy through its seven-day repos.
This marks the first move in the past 10 months, dating back to last August. It follows hot on the heels of the country’s major banks slashing deposit rates last week, which included a decrease in interest rate for five-year time deposits from 2.65% to 2.5%.
The timing of this decision is particularly notable, as it precedes PBoC’s medium-lending facility interest rate announcement, which is set to be unveiled this Thursday. Moreover, the bank’s loan prime rate is scheduled for release on June 20.
Adding to this week’s financial developments, China is expected to publish its May credit lending data along with several key activity indicators such as retail sales and industrial production.
USD/CNH extends recent up trend further to as high as 7.177 after the release, as Yuan’s depreciation continues. From a pure technical perspective, the break of medium term channel resistance is taken as a sign of upside acceleration. Near term outlook will stay bullish as long as 7.1162 support holds. Next target is 161.8% projection of 6.6971 to 6.9963 from 6.8100 at 7.2941. For now, there is no hints that the authority would allow Yuan falls through 7.3 handle, which is close to prior trough at 7.3745.
