The move by China's central bank boosted the comdoll and higher risk currencies, causing the US dollar index to fall slightly.
While the world's central banks share a "rate hike" vision, China's People's Bank of China (PBoC) has gone against the grain by cutting its one-year interest rate for the first time in nearly two years. The PBoC's move boosted the comdoll and higher risk currencies, so the US dollar index edged down around 0.1 percent in the early European session (17/January).
The latest Chinese economic reports show a slowdown in the fourth quarter of 2021 due to the COVID-19-related lockdown and the debt crisis of real estate companies. Retail sales slumped sharply, although industrial production and fixed asset investment performed slightly better than expected.
In response to the slowdown, the PBoC announced a cut in interest rates for one-year medium-term lending facilities for a number of financial institutions by 10 basis points -from 2.95 percent to 2.85 percent-. The PBoC also lowered its 7-day repo rate from 2.20 percent to 2.10 percent. The PBoC is even likely to carry out further monetary easing this year, as the wave of lockdowns continues and the inflation rate weakens.
USD/CNY suddenly fell around 0.1 percent to around 6.3438 in the Asian session, continued to be crushed at a record low since May 2018. The Aussie, Kiwi, Loonie, and the Euro compactly took advantage of the opportunity to maintain their respective positions. Support for low interest rates from the PBoC has the potential to support the economy, so that the demand for commodities and other goods from abroad, which are sought after by China, can also be supported.
It is noteworthy that the PBoC's policy direction is opposite to that of the majority of other major central banks. The two most relaxed major central banks, the BoJ and the ECB, are neither actively cutting interest rates nor increasing their bond purchases.
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