China's yuan plunges to new low as PBoC rate cut takes effect

The Chinese yuan fell to a more than two-year low on 1 March, ignoring positive surprise on the PMI data front, as the PBoC rate cut announced on Saturday (28 February) took effect.

The Chinese central bank slashed the one-year deposit and lending rates by 25 basis points each to 2.5% and 5.35% respectively.

The PBoC also increased the deposit rate ceiling to 1.3 times from 1.2, so that lenders will now pay a larger margin over the benchmark, effectively lowering the maximum deposit rate by 5 basis points to 3.25%.

Analysts said the Chinese reaction to slowing growth and disinflation through rate cuts will help stimulate growth.

The USD/CNY rose to a high of 6.2749, its highest since late 2012, translating to a 1.1% yuan slide so far this year. The Chinese currency started the latest downward trend in November last year and since then, it has fallen nearly 2.6% against the greenback.

Meanwhile, data on Monday (2 March) showed that the China HSBC/Markit PMI for manufacturing posted at 50.7 in February, compared to the earlier flash reading of 50.1 and up from January's 49.7.

It signalled the first improvement in the health of the sector since last October, Markit said.

The official PMI released over the weekend by the National Bureau of Statistics and the China Federation of Logistics and Purchasing rose to 49.9 in February from 49.8, helped by output and new orders expanding. Analysts were expecting a decline to 49.7.

The market is now waiting for the annual meeting of the National People's Congress this week where economists expect Premier Li Keqiang to announce a 2015 growth target of around 7% down from 7.5% last year.