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11 May 2015
Expectations strong for further easing in China – MP
FXStreet (Barcelona) - With the PBoC cutting its benchmark interest rates by 25bps, Dean Popplewell, Director of Currency Analysis and Research at MarketPulse, mentions that market expectations for further easing have climbed higher, and at the same time any feed through to commodity currencies is unlikely.
Key Quotes
“Chinese policymakers cut rates again over the weekend, the third time they’ve done so in seven months. This time around it has caused little market reaction, mostly because of the size. The PBoC cut its main policy rate after soft trade and underwhelming consumer-price index (CPI) data.”
“April CPI inflation rose by a decimal to a four-month high of +1.5%, but still missed market expectations. The year-to-date CPI of +1.3% was also underwhelming, as it remains well below the official 2015 target of +3.0%. It’s worth noting that food CPI was once much higher at +2.7% versus +0.9% for non-food. Officials do indicate that supply of meat and fresh vegetables has been stable, so there are no expectations of a sharp jump in food prices in the near term.”
“The easing — a -25 basis points cut in deposit and lending rates to +2.25% and +5.10%, respectively — was widely expected by the market following last week’s downbeat trade numbers. The PBoC also noted it will continue to “promote real interest rates back toward reasonable levels” in response to the downward pressure the economy is facing.”
“The consensus is for further easing by the PBoC. But will looser policy in China provide support for commodity- and interest rate-sensitive currencies like the AUD, NZD, or CAD? The initial market reaction does not expect a looser policy in China to feed through to commodity currencies.”
Key Quotes
“Chinese policymakers cut rates again over the weekend, the third time they’ve done so in seven months. This time around it has caused little market reaction, mostly because of the size. The PBoC cut its main policy rate after soft trade and underwhelming consumer-price index (CPI) data.”
“April CPI inflation rose by a decimal to a four-month high of +1.5%, but still missed market expectations. The year-to-date CPI of +1.3% was also underwhelming, as it remains well below the official 2015 target of +3.0%. It’s worth noting that food CPI was once much higher at +2.7% versus +0.9% for non-food. Officials do indicate that supply of meat and fresh vegetables has been stable, so there are no expectations of a sharp jump in food prices in the near term.”
“The easing — a -25 basis points cut in deposit and lending rates to +2.25% and +5.10%, respectively — was widely expected by the market following last week’s downbeat trade numbers. The PBoC also noted it will continue to “promote real interest rates back toward reasonable levels” in response to the downward pressure the economy is facing.”
“The consensus is for further easing by the PBoC. But will looser policy in China provide support for commodity- and interest rate-sensitive currencies like the AUD, NZD, or CAD? The initial market reaction does not expect a looser policy in China to feed through to commodity currencies.”