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China cuts interest rates – Danske

FXStreet (Barcelona) - Flemming J. Nielsen of Danske Bank, notes that China cutting its interest rate by 25bps is positive for risky assets, particularly emerging markets and commodities.

Key Quotes

“The Peoples Bank of China (PBoC) today cut its leading interest rates. The one-year benchmark deposit rate was cut by 25bp to 2.75% and the one-year benchmark lending rate was cut by 40bp to 5.6%. As the lending rates have largely been liberalised, the oneyear depot rate is now the most important of the two benchmark interest rates.”

“The interest rate cut is extremely positive for risk sentiment and risky assets in general in financial markets and it is particularly positive for emerging markets and commodities. Hence, it should help commodity and Emerging Market currencies like the Norwegian krone, the Australian dollar, Canada dollar, Brazilian real, Mexican peso and the South African rand.”

“The implication of today’s interest rate cut is that the Chinese growth manufacturing PMIs and growth have probably bottomed out and should start to improve in Q1 when investment demand and particularly the property market will start to rebound.”

“The growth outlook is definitely more positive for H1 15. However, we do not expect to see a sharp rebound in growth next year as the government will still be focused on managing financial risk and securing sustainable credit growth.”

“Hence, the PBoC will continue to ease only cautiously and we do not expect it to cut rates further. In addition, China remains in a structural slowdown, which will continue to weigh on growth further ahead.”

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