China interest rate liberalisation announced- one step closer to free-floating yuan

Commentary via ING regarding the earlier news on:

• China - PBOC to announce new reference rate for bank loans, to lower borrowing costs to firms

ING

Such liberalisation is part of a process towards achieving freely quoted bank interest rates to customers.

• could narrow banks' net interest margins.
• Will a lower interest rate reflect in a weaker yuan?
  We don't believe that lower interest rate system from competition of banks will guide the USDCNY. The USDCNY is still guided by the daily fixing. As such this policy doesn't change our forecast of USDCNY at 7.10 by end of 2019.

ING emphasize changes will be very slow, and on the exchange rate:

• This takes it one step closer to a free-floating currency but of course, progress will be slow.