SINGAPORE, SINGAPORE — (Marketwired) — 07/23/13 — In FXPRIMUS- for 22 July, the brokerage firm-s Director of Training & Education, , highlights the Peoples- Bank of China-s market reforms.
Key Events to Focus On This Week
Key Events Last Week
Economic Insights
People-s Bank of China (PBOC) removes floor on lending rates
China finally removed the floor on the lending rates last Saturday, leaving the ceiling on the deposit rates before the full rates liberalization. The move tends to reform the financial sectors and free the “300bps spread”. The PBOC used to asymmetrically increase or decrease the both deposit and lending rate.
To view the figure associated with this press release, please visit the following link:
Source: Bloomberg, FXPRIMUS
Said Mario Sant Singh, “Now, it is best for us to understand the “yellow card” from the PBOC in June. There will be no more 300bps interest rate margin protection, and we predict there will be rate competition among the banks given the large number of the commercial banks in China.”
“The move from PBOC tends to benefit more small medium enterprises (SMEs) after the lending rate liberalization. The only question is when the central bank is going to remove the ceiling of the deposit rate, which is only a matter of time,” he said. “Its impact could be much bigger than removing the floor on the lending rate as deposit rate directly affects the household income and it also plays a key role on the deleveraging process. According to the PBOC-s official statement last week, the liberalization of the deposit rate will be the most risky part. In my point of view, it is equal to conveying a message that the central bank is not willing to fully remove the protection to the banking industry in China, and to add on further volatility in the domestic stock market.”
China-s Growth Metrics in H2: From shadow banking to lower borrowing cost?
The rate liberalization has become the first important step in its reform process after the market has been calling it for a year. At the same time, officials do not intend to lower its annual GDP target at this moment and it will most likely remain so towards the end of the year.
To view the figure associated with this press release, please visit the following link:
Source: Bloomberg, FXPRIMUS
When weak external demand reflected on the recently “more accurate” trade data, it shows the growth path in H2 will be very challenging. Technically speaking, the country still has room to run some infrastructure investment despite the large overcapacity has been made due to the mega stimulus in the past 4 years. The difficulty part is to distinguish whether these new projects are for meeting the annual growth target or long term growth.
One of the growth metrics the officials can do is the exchange rate. Strong demand for Yuan in the past few years was primarily fuelled by investors- belief that the currency would continue to appreciate. The PBOC intensified this cycle by raising the Yuan fixing, possibly in order to reduce the amount of dollars the central bank was forced to buy and sterilize to maintain exchange rates. This could decelerate the capital outflow when speculation on the Federal Reserve-s (Fed) tapering arises.
Given the weak exports environment, growth would be still largely driven by the domestic demand. The main ways are personal consumption and “old style” investment. The housing price in China reached another new high curbing the personal consumption; hence we are back to the methodology to observe growth speed by benchmarking the total aggregate financing.
The officials- effort is to make the excess amount of the off-balance sheet return to the bank-s balance sheet, in order to lose the control of the credit activities. In theory, SMEs- funding source has been widened after the lending floor removed. Increasing lending to SMEs could also increase the banks- IM. Meanwhile, state owned enterprises could get a cheaper loan than previously. Further non-financial sectors- reform would be needed as well because the demand is the bottom line.
To view the figure associated with this press release, please visit the following link:
Source: Bloomberg, FXPRIMUS
ABOUT FXPRIMUS
offers retail traders a level of trade execution, service quality and fund safety that are normally reserved only for the largest investors. Serving traders in 205 countries across 6 continents combines with and Straight Through Processing, top notch execution with tight spreads, prompt and responsive customer support, , and an industry-leading trader toolset that includes free access to and truly is The Safest Place To Trade.
Contacts:
FX Primus Ltd.
Kevin De Silva
Director of Marketing