Liberalising rates key element of financial reform – China central bank

However, the move also suggests Chinese authorities are concerned about slowing growth rates and market upheaval, and this has reignited worries about global demand.

But an editorial in Monday’s edition of “China Daily”, which is published by the government, said that China’s dedicated focus on promoting growth has led to leaders to ignoring the effects of dependence on heavy industry powered by cheap, but dirty coal. Microsoft vaulted to a 15-year high, while Amazon and Google’s parent company Alphabet closed sharply higher. The former two hit record highs, while Microsoft rose to a 15-year high.

Mainland Chinese shares rose on Monday after China cut the benchmark one-year lending rate – for the sixth time in less than a year – by 25 basis points to 4.35%, and lowered big banks’ reserve requirement ratio late. “The impact was perhaps not as large as it should have been as a few investors already priced in a interest-rate cut before the end of the year”.

The South Korean won shed 0.84 percent, Indonesia’s rupiah eased 0.15 percent, and the Malaysian ringgit was 0.58 percent lower.

At present the Chinese central bank is cutting rates to bolster economic activity, knowing that this will cause capital outflows to continue. That saw the Italian and Spanish two-year government bond yields both turn negative for the first time, meaning investors effectively pay to hold them. The benchmark rate for one-year bank deposits was reduced by the same margin to 1.5 percent.

The euro weakened from US$1.135 to $1.10 yesterday morning. Most traders and analysts had expected the central bank to ease policy further in coming months after third-quarter economic growth eased to the lowest level since the global financial crisis. In the spot market, the yuan opened at 6.3550 per dollar and was changing hands at 6.3570 in early trade, 70 pips away from the previous close and 0.03 percent away from the midpoint. If the economy grows by less than 7% this year it will be China’s weakest rate of annual growth for 25 years.

The decision – days before the Communist Party met on Monday to set the direction of the economy in the next Five Year Plan – will bring significantly more competition to the financial sector in the predominantly state-controlled economy. Inflation is still expected to fall within the RBA’s comfort zone of 2 to 3 per cent. But if prices are found to have accelerated at an uncomfortable pace-and the falling dollar is making imported goods more expensive-then the RBA will be reluctant to cut rates again in November.

National Australia Bank’s global co-head of foreign exchange strategy Ray Attrill agrees, saying the return of calm to global markets since August, added to the PBoC’s latest move and the possibility of easing in Europe and elsewhere, has left the Aussie’s fair value as high as US80¢.