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China Rate-Cut Good for Developing Currencies, UBS’s Narain Says

Manik Narain, the head of emerging-market currency strategy at UBS AG in London, comments on China cutting benchmark interest rates for the second time this month.

The one-year lending rate will fall by 31 basis points and the one-year deposit rate will drop by 25 basis points effective tomorrow, the People’s Bank of China said on its website today. Banks can offer loans of as much as 30 percent less than benchmark rates, it said.

“The Chinese action has happened faster than the markets were expecting. It is quite an aggressive cut and more powerful than the headline suggests as China has increased the ability for banks to pass on lower borrowing costs to the economy.

“This will be taken as a sign that China is undertaking further steps to support the economy and a recovery through the second half of the year, given that the market has been concerned about the trajectory of China’s recovery for some time.

“This is supportive for global sentiment and global expectations of growth and will be a positive for emerging-market currencies in the near term.”

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