China Showing Signs of Recovery

20/07/2021

China maintained its benchmark loan prime rate unchanged for both short-term and long-term corporate and household loans. With the risk of delta variant of COVID-19 still playing at the back of the mind, investors decided to stay out of risky assets, which resulted in China’s Interest Rate Decision making not much of an impact in the forex market.

As foreseen by experts, People’s Bank of China (PBOC) maintained its Loan Prime Rates (LPR) for one year intact at around 3.85%. The LPR for five-year loans was also maintained at the expected rate of 4.65%. China is maintaining this interest rate for the 15th consecutive month. Experts view this as a sign of China’s economy recovering from the corona shocks.

This decision did not have much impact on the market, even though China’s short-term interest rates are an important influencing factor in currency evaluation. A small change that can be attributed to this Interest Rate Decision is regarding the USD/AUD price. Having witnessed the PBOC Interest Rate Decision, the AUD/USD bounced from its previous level of 0.7332, but could not withstand the pressure from the bears amidst the pandemic woes.

Also, as part of maintaining strict control over the Chinese Yuan, the PBOC fixed the Chinese Yuan reference rate at 6.4855 compared to the previous reference rate of 6.4700 and close rate of 6.4905.
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