The PBoC prime loan rate decisions: Cut by 5 basis points for 1 and 5 year rates (CNY lower)

The PBoC prime loan rate decisions which are announced by the People´s Bank of China arrived as follows:

• Cut by 5 basis points for both the for 1 and 5-year rates. 
• China 5-year loan prime rate 4.80% (prev 4.85%).
• China 1-year loan prime rate 4.15% (prev 4.20%).

USD/CNY has popped around 0.10% on the decision and AUD/USD has moved 5 pips higher. 

In prior meetings and announcements, the Chinese authorities had been repeatedly emphasizing a need to improve financing to the country’s privately run, smaller companies, which account for much of the economic growth. The key points of the new “loan prime rate” were to increase the role of market forces in determining rates. At the same time, there was a focus on lower financing costs to the real economy. However, how effective these rates will be in helping smaller businesses is yet to be seen considering how difficult it may be to spur demand for new loans.

About the PBoC Interest Rate Decision:

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.