In a surprised move, China’s PBoC today announced its first reduction in a key short-term policy rate in nearly a year, following weaker-than-expected economic growth in Q2. The economy expanded at its slowest pace in over a year, prompting the central bank to lower the seven-day reverse repo rate from 1.8% to 1.7%. PBOC emphasized that these rate cuts are part of its strategy to “strengthen counter-cyclical adjustments to better support the real economy.”
Following closely on PBOC’s announcement, Chinese banks adjusted their main benchmark lending rates, marking the first such adjustment since August 2023. The one-year loan prime rate was reduced to 3.35% from 3.45%. The five-year rate, which is crucial for mortgages, dropped to 3.85% from 3.95%.
In response to these developments, USD/CHN extends the recovery from 7.2597 following the news. Technically, current development suggests that pull back from 7.3111 has already completed, and larger rise from 7.0870 is probably ready to resume. Break of 7.3111 will target 100% projection of 7.0870 to 7.2827 from 7.1648 at 7.3605, which is slightly below 7.3745 (2023 high). This will remain the favored case as long as 7.2597 support holds.
