The USDCNH currency pair fell to about 7.15 per dollar, moving away from its six-month high. This was due to central Chinese banks lowering their deposit rates, hinting at further policy easing to boost the economy. China’s top five banks announced a cut in interest rates on some deposits starting Friday. As expected, the People’s Bank of China kept its one-year and five-year loan prime rates at 3.45% and 4.2%, respectively.
The market is now predicting cuts in key lending rates and possibly a decrease in the reserve requirement ratio next year to maintain sufficient liquidity. Analysts believe China’s deflationary situation and slow economic growth justify this view. Meanwhile, recent US financial data has increased speculation that the Federal Reserve will begin reducing interest rates next year.