The PBoC announced a cut in key interest rates by 0,1% yesterday to bolster business and consumer confidence amidst unstable economic growth. However, this reduction is considered insufficient to address the challenges in the real estate market and stimulate consumer spending, which is critical for achieving the growth target of approximately 5% set by the National Congress for this year. China's Q2 GDP growth was only 4,7%, below expectations. While the rate cut aims to lower borrowing costs for businesses and reflects the urgency in deploying monetary policy tools to boost growth and confidence in the economy, it also contributes to further weakening of the CNY.
The USD Index slightly decreased yesterday as the market reassessed the implications of U.S. President Joe Biden's unexpected decision to end his re-election campaign and awaited the upcoming central bank meetings in the U.S. and Japan next week. The Federal Reserve may use its policy meeting on July 30-31 to signal readiness to begin an easing cycle in the next meeting in September, whereas the Bank of Japan may start raising interest rates on July 31.
The USD/VND interbank rate slightly increased by about 10 Dong yesterday, closing at 25.335. This rise was attributed to some large foreign currency purchase demands for external partner payments in the morning. However, given the potential for the FED to cut interest rates 2-3 times in the second half of this year, the weakening outlook for the USD will likely be reflected in the upcoming downward adjustments of the domestic exchange rate.
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