PBOC cuts 25 bps to the 5-year Loan Prime Rate to 3.95%

The People's Bank of China announced on Tuesday that it maintained the one-year Loan Prime Rate (LPR) unchanged and cut the five-year LPR by 25 basis points (bps) from 4.20% to 3.95%. 

Market reaction

At the time of writing, AUD/USD is holding higher ground near 0.6532, losing 0.12% on the day.

About the People’s Bank of China Interest Rate Decision

The People’s Bank of China’s (PBoC) Monetary Policy Committee (MPC) holds scheduled meetings on a quarterly basis. However, China’s benchmark interest rate – the loan prime rate (LPR), a pricing reference for bank lending – is fixed every month. If the PBoC forecasts high inflation (hawkish) it raises interest rates, which is bullish for the Renminbi (CNY). Likewise, if the PBoC sees inflation in the Chinese economy falling (dovish) and cuts or keeps interest rates unchanged, it is bearish for CNY. Still, China’s currency doesn’t have a floating exchange rate determined by markets and its value against the US Dollar is fixed mainly by the PBoC on a daily basis.