14-day rate cut to have no effect on currency – Commerzbank

On Monday morning, the PBoC cut one of its interest rates, the 14-day repo rate, notes Commerzbank currency analyst Volkmar Bauer.

The impact of the cut is probably negligible

“If you’re wondering where a 14-day rate comes from in addition to the 7-day repo rate, the 1-year Medium Term Loan Facility and the two base lending rates, you’re probably not alone. And it pretty well describes the problem that the PBoC has and maybe likes to cultivate from time to time.”

“Despite all assurances, monetary policy in China remains very opaque. Just a few weeks ago, it was announced that the PBoC would focus more on the 7-day repo rate and stop using the 1-year auction rate to guide China’s interest rates.”

“This raises the question of why a cut in the 14-day repo rate is being sold as monetary easing today, even though this refinancing tool is rarely used and the move only reflects the cut to 7-day in June. In real economic terms, the impact is therefore likely to be negligible, which is why this rate cut is unlikely to have any real impact on the currency.”