Amidst rife expectations of interest rates cut by the People’s Bank of China (PBOC), the Chinese central bank cut the 7-day Reverse repo rate from 2..0% to 1.90% on Tuesday.

Markets are expecting the PBOC to announce a cut to the rates on the  Medium-term lending facility (MLF) on Thursday.

Analysts at Nomura noted, “We believe the cut in banks’ deposit rates sends a strong signal that the PBOC is paving the way for a cut in benchmark lending rates (MLF) to guide down LPR.”

“This new round of deposit rate cuts, as well as rapidly worsening exports, broadening property distress, ongoing disinflation, and a likely Fed pause, raise our conviction of this call on rate cuts,” they added.

Market reaction

The PBOC rate cut puts a fresh  bid under the Chinese Yuan, lifting the USD/CNY pair to near 7.1650, at the press time.