Offshore Yuan Unruffled By PBOC Rate Cuts, China's GDP & Activity Data

PBOC interest-rate action and a slew of Chinese economic data do not seem to have had much impact on offshore yuan so far, even as the People's Bank slashed rates in a bid to stimulate growth, while the latest GDP figures proved stronger than expected on balance.

• China's central bank trimmed the interest rate applied to its 1-year MLF operations by 10bp to 2.85% for the first time since Apr 2020, while net injecting CNY200bn of medium-term liquidity into the financial system, to revive flagging growth momentum. Note that while there was speculation that policymakers could slash the 1-year MLF rate today (and if so, likely by just 5bp), the consensus view had been that the rate would hold steady. The PBOC also cut the rate applied to 7-day reverse repo operations by the same amount to 2.10%.
• China's GDP grew 1.6% Q/Q in the final quarter of 2021, as the pace of expansion picked up from +0.2% in Q3 and topped median estimate of 1.2% and the government's official target of "over 6.0%." Meanwhile, December activity indicators were a mixed bag, as industrial output rose faster than expected, while retail sales growth slowed more than forecast and the unemployment rate unexpectedly edged higher to 5.1% from 5.0%.
• Thursday's fixing of the benchmark Loan Prime Rate will take focus later this week, although only a handful of analysts expect a reduction rather than no change. In light of today's steps from the PBOC, participants will be on the lookout for any further action on Thursday.
• Spot USD/CNH trades +28 pips at CNH6.3606 as we type. Bulls need a rebound above Jan 6/Nov 26 highs of CNH6.3976/99 to have the upper hand. Conversely, a dip through Jan 14/Dec 31 lows of CNH6.3425/6.3379 would draw bearish attention to Dec 8 low of CNH6.3305.