USDCNH Drops as Chinese Banks Cut Rates

The offshore yuan fell to about 7.15 per dollar. This was a further drop from its six-month high. This happened because major Chinese banks lowered their deposit rates. This made people think that the authorities would continue to ease policy to help the economy. Several banks, including Ping An Bank, Shanghai Pudong Development Bank, and China Citic Bank, cut their deposit rates this week. They followed the lead of the major state banks. Last week, the People’s Bank of China kept its one-year and five-year loan prime rates at 3.45% and 4.2%. This was what people expected.

Now, markets are expecting rate cuts in key lending rates. They also think the reserve requirement ratio might be reduced next year. This would ensure there is enough liquidity. Analysts say that China’s deflationary environment and slow economic growth support this view. Also, recent US economic data has led to bets that the Federal Reserve will start cutting interest rates next year.

USDCNH – 4H Chart