CNH is lower to open the week after the PBOC cut rates

The People’s Bank of China cut policy rates today:

• China cuts 1 and 5 year loan prime rates by 10 basis points each

• PBoC announces cut to 7-day reverse repo rate to 1.70% from 1.80%
  • the PBOC last lowered the seven-day rate in August 2023, when it cut the MLF also. Noth were cut by 10bp.

• PBOC to lower collateral for Medium-term Lending Facility (MLF) loans

The Key LPR rates now:

The one-year rate has been cut to 3.35%

• prior 3.45%

The five-year rate has been cut to 3.85%

• prior 3.95%

The cuts were not widely expected. But they do come after another round of poor data:

• weaker-than-expected Q2 GDP
• consumer inflation once again edging towards deflation
• soft PMIs

Debt remains as a huge drag on the property sector. This in turn is weighing on consumer spending.

The policy cits from the PBOC are efforts to support pro-growth policy, consistent with the message out of the plenum held last week.

While fear of a collapsing yuan has been a constriant on PBOC easing with expectations now rising of a near-term Fed cut, eyed in September, the PBOC appears to think it has room for the easing now without threatening the yuan too much.

Update on CNH, its lower on the session, but not a huge move