Effective Saturday Chinese Commercial Banks will have the freedom to set their own lending rate. Previously the lowest rate that could be offered was 70 percent of the benchmark rate published by the Central Bank.
The move is aimed at increasing internal consumption and employment as companies could potentially have lower funding costs. This reform while not massive it’s a first step that could be followed by deposit rate liberalization. Deposit rates are capped at 110 percent of the benchmark rate. There are strong rumours that the deposit rate could be the next reform as China seeks to boost it’s slowing growth back to life.
The AUD and NZD were the big winners of the move as demand for their goods could increase with more capital available at a cheaper rate for Chinese companies.
The G20 will certainly discuss China’s growth and this going into the weekend will make sure the government is trying to do its part in getting the economy back on the fast growth lane.
Japan Upper House Elections Stand in The Way of Reform
Prime Minister Shinzo Abe had to put one of his three arrows back in his quiver as he was preparing for the upcoming elections. The structural reform arrow had to wait after Abe’s party passed the elections as the changes might rub some of the supporters the wrong way. This Sunday the LDP is expected to continue the dominance it regained in the December elections that put Abe in the driver’s seat.
The reforms might have to wait as several analysts and past economic policy makers have commented on the herculean task that awaits Abe if he wants to modernize corporate Japan.
The Yen is trading slightly above 100 versus USD. After this weekend’s elections Abe will face another test as the Japanese CPI is released on Thursday. Inflation is the main indicator to which Abe has aimed the Bank of Japan’s efforts. After slight rise last month, deflation is still very much a reality in Japan, but if the BoJ was able to keep the momentum toward positive inflation the market will reward Abenomics.
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