13 June 2023
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China cuts 1w policy rate by 10bp

By Khatija Haque

The People’s Bank of China cut its 1 week reverse repo rate by 10bp to 1.9% this morning, providing some easing in monetary policy after disappointing economic data over the last few weeks. Further easing is expected on Thursday when the 1-year medium-term lending facility rate is announced. The MLF rate was last lowered in August 2022 to 2.75%.

Market focus today is squarely on the US inflation data for May which is expected to show a sharp slowdown in the headline rate from 4.9% y/y in April to 4.1% last month. Core inflation is also expected to slow, albeit more modestly, to 5.2% y/y from 5.5% in April. A higher-than-expected reading would raise the probability of another rate hike from the Fed, either this week or in July.

Turkey’s current account deficit widened to -USD5.4bn in April from an upwardly revised -USD4.9bn in March. The April reading was worse than the market had expected, and was financed by drawing down official reserves, which declined by more than -USD8bn in April. Tourism receipts are expected to provide a boost to the current account over the summer, but pressure on the external balance is likely to resume absent policy adjustments. CBRT is expected to raise rates at its meeting later this month.

Non-oil trade between the UAE and India has grown 5.8% in the year since the Comprehensive Economic Partnership Agreement (CEPA) was implemented in May 2022, according to the UAE’s official statement to mark the anniversary. Indian estimates put the growth higher at 14-16%. In addition to boosting trade, the CEPA  facilitates increased bilateral investment and joint ventures. The UAE has subsequently signed CEPAs with Indonesia, Turkey and most recently, Cambodia. Talks are underway on agreements with Thailand, Malaysia, Costa Rica and Vietnam.

Saudi Arabia signed USD 10bn worth of investment agreements with Chinese firms at the start of the 10th Arab-China Business Conference in Riyadh. The key sectors included in the deals were electric vehicles, renewables, agriculture, minerals, tourism and healthcare.

Today’s Economic Data and Events

  • 10:00 UK ILO unemployment rate (3m//3m Apr) forecast 4.0% from 3.9% previously
  • 10:00 GE final CPI (May) forecast -0.1% m/m and 6.1% y/y
  • 13:00 GE ZEW survey expectations (Jun) forecast -13.5 from -10.7 previously
  • 16:30 US CPI (May) forecast 0.1% m/m and 4.1% y/y

Fixed Income

  • US Treasuries oscillated between gains and losses overnight, being dragged lower after hawkish commentary from Bank of England officials before ultimately ending the day marginally stronger ahead of the two-day FOMC meeting that begins today. The 2yr UST yield fell about 2bps to 4.577% while the 10yr closed near flat at 3.7356%.
  • Gilt yields were the biggest mover yesterday with 10yr yields up 10bps at 4.332% after Catherine Mann from the BoE’s MPC said she was “very concerned” about inflation. Elsewhere bonds showed little movement on the close with bund yields adding 1bps to 2.381%.
  • Turkish 10yr local currency bonds sold off overnight with yields up 147bps at 16.02%. The CDS tightened to about 503. In South African, 10yr SAR bonds ended the day stronger with yields down about 7bps at 11.843%.


  • The dollar index closes relatively little changed after some wide swings across most pairs. EURUSD ended the day up less than 0.1% at 1.07575 after having risen to nearly 1.08 mid-day. GBPUSD pushed lower by 0.5% solidly over the day, closing at 1.2509 while USDJPY eventually settled higher at 139.60, up 0.1%.
  • Commodity currencies closed more mixed with USDCAD higher by 0.2% to 1.3368 while AUDUSD pulled stronger for the Aussie, rising by 0.1% to 0.6751. NZDUSD softened by 0.1% to 0.6122.


  • Sentiment in equity markets was broadly positive at the start of the busy week of major central bank decisions. In Asia, the Hang Seng ended the day up 0.2% and Japan’s Nikkei gained 0.5%, though in mainland China the Shanghai Composite lost 0.2%.
  • European equities picked up through the course of the session, and by the close all the majors had enjoyed some positive momentum. The FTSE 100 was the laggard as it added just 0.1% after hawkish commentary from BoE officials, but on the continent the CAC added 0.5% and the DAX 0.9%. In the US, the Dow Jones, the S&P 500, and the NASDAQ added 0.6%, 0.9%, and 1.5% respectively.
  • Locally, the DFM and the ADX both closed up 0.1%.


  • Oil prices dropped to start the trading week with Brent futures down nearly 4% at USD 71.84/b and WTI dropping by 4.4% to USD 67.12/b. The market lacked a specific negative catalyst and is trading lower on impressions of weak demand even if fundamentals show a better picture. The forward structure for Brent futures is trading at near parity on the 1-2 month spread while the WTI spread for the same months has already moved into a small contango.



Written By

Khatija Haque Head of Research & Chief Economist

Edward Bell Head of Market Economics

Daniel Richards Senior Economist

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