PBOC starts easing

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The WSJ reports that China has lowered the 1yr lending rate 25bps to 6.31%. I think that this is very significant – and a material boost to my growth outlook.

Relative to my baseline, this will boost Aussie exports, and therefore the AUD.  The AUD has rallied somewhat, and bond futures have sold off ~5bps on the news.

I had not expected any true Chinese easing until 2013 – i regard the RRR cuts as an endogenous response to the smaller current account surplus.

This is a BIG development.