The Yuan retreated to a two-year low

02.03.2015
After the announcement of the People's Bank of China on the lowering of the basic interest rate on loans and deposits, the local Yuan currency tested a two-year "minimum".

On March 1, 2015 the People's Bank of China decided to lower the benchmark interest rate on loans and deposits in Yuan to 2.5% that is, by 25 basis points. This was announced last night but yesterday was inoperative, so capital markets sell this information in quotes just now.

Among other things, the lending rate to financial institutions for 12 months has been revised downward by 25 basis points. Now it is 5.35%.

This decision means that the PBC is softening the monetary policy due to external and internal economic conditions. Apparently, it's time to create a kind of "soft" fundamentals of the economy, which will help "soften the blow" when necessary.

Last time the PBC applied a similar mechanism in November last year when it made a cut of 40 basis points, reducing the rate to 5.6% per annum and the interest on deposits - up to 2.75% per annum (-25 b. p.).

The decision of the Chinese currency regulator has responded in countries oriented on China: Australian and New Zealand dollars fell on Monday morning in tandem with the US dollar. Yuan is now trading at a minimum of two years in tandem with USD.

What's next? The decision of the PBC plays a certain role indicative for investors: if a giant like China, lowering rates in response to the long-term phase of deterioration in the global economy, it is not expected to improve in the near future. Consequently, the US dollar will for a long time remain among the market favourites.
 
RoboForex Analytical Department

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