Frantic Friday: China Cuts Interest Rates
MarketPulse | Nov 21, 2014 06:56AM ET
China cut its benchmark interest rates for the first time in more than two years this morning to lower borrowing costs and lift a cooling economy that is on track for its slackest annual growth in over two decades.
The PBoC (People’s Bank of China) has indicated that they will slash one-year benchmark lending rates by 40 basis points to +5.6%.
One-year benchmark deposit rates would be lowered by 25 basis points, it said, adding that the reductions would be effective on Nov. 22.
Chinese policy makers also said that they would further free up China’s interest rates by raising the ceiling for deposit rates to 1.2 times of the benchmark level, from 1.1 times previously.
The initial market reaction has given commodity currency a real boost, especially AUD ($0.8705), NZD ($0.7923) and CAD ($1.1282). This is mostly on the back of potential future growth prospects. With the ECB’s Draghi having another one of his “do whatever it takes” moments earlier this morning has the forex market ending this week frantically as market participants know that liquidity becomes more of an issue during the U.S Thanksgiving festivities.
Japan will “not” be kicking things off in the Asian session as they celebrate their Labour day on Nov 23. Governor Kuroda from the BoJ will grab most of the attention from his planned speeches on Monday (due to speak at a meeting with business leaders, in Nagoya and at the Paris EUROPLACE International Financial Forum, in Tokyo); nevertheless, he is not expected to stray too far from the BoJ’s official copy/rhetoric from last weeks monetary policy meet. German Ifo business confidence on Nov 24 should be capable of keeping the EUR on its toes.
The market will try and engage with the minimum of interest in U.S preliminary GDP (Nov 25) and U.K q/q GDP on Wednesday, as no one wants to have too much strapped on as the U.S begins to celebrate thanksgiving, the largest and most travelled holiday period in the U.S calendar. Historically, forex volumes plummet over the two-day festivities (its a financial half day, but most make it a long w/d). Be aware that OPEC happens to have an all day meeting scheduled for the same day – could the ministers surprise the crude market?
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