PBOC leaves rates unchanged. What's next for yuan?

People's Bank of China (PBOC) left interest rates unchanged today, in-line with market expectations. 1-year prime lending rate was left at 3.65% while 5-year rate, which is used for majority of mortgage loans in China, was left at 4.30%.

China experienced a clear setback after the initial euphoria associated with the reopening of the economy after the pandemic, although at the same time, Goldman Sachs believes that with the current momentum, the government's target of 5% growth should be achievable. In such a case, GS does not see the possibility of any additional stimulus in the country. However, it believes that there is potential for a cut in reserve requirement ratio, as a cut to main interest rates is unlikely given the significant spread between the rates in the USA or a recent depreciation of yuan. On the other hand, the weakness of the yuan could be seen as a way to increasing competitiveness of the economy, which declined significantly in the latter part of 2022. There is also a strong correlation with copper, which means that further problems in China could lead to an attempt to test of $8,000 per tonne area.

Source: xStation5