The reforms, originally intended to lower corporate borrowing costs, has increased speculation that Beijing will continue to drive lower borrowing costs to maintain current economic activity levels.
Economists believe that this minimal reduction in lending rates will only have a minor influence on economic conditions, with only a six percent reduction representing a small, but definite step to further growth.
Source: Reuter’s Winni Zhou and Kevin Yao
The stimulus effect of the Chinese central bank’s rate drop has already had significant benefits to the Aussie Dollar. This has weathered some tough times in the recent global climatefollowing trade tensions and recent caution around global growth.
The AUD climbed to 67.80 around midday on Monday 19th with analysts suspecting further rate cuts by the RBA on home soil to reduce unemployment and stimulate inflation towards the target rate, suggesting potential for further growth in the Australian economy.
Source: Wayne Cole, news.com.au
Commodities are experiencing positive shocks after China’s interest rate reforms.
Aluminium prices have reached a two week high, while copper prices have also seen improvements after the Chinese government announced its interest rate reforms on Saturday.
Global shortages in aluminium have become an increasing sentiment among traders because of recent floods affecting the Shandong province in China – a big producer of metal.
However, interest rate reforms (followed by hopes for potential interest rate cuts) have spurred on positive consumerconfidence, causing aluminium prices to bounce back sharply.