The Chinese yuan traded relatively sideways against the US dollar to kick off the trading week after Beijing cut its key loan prime rate (LPR) for the first time in nearly two years. The yuan is poised for an annual gain against the greenback, but will investors remain bullish on the currency heading into the next calendar year?

The People’s Bank of China (PBoC) announced on Monday that it would slash the one-year loan prime rate from 3.8% to 3.8%. But policymakers left the five-year LPR unchanged at 4.65%.

The last time the LPR was slashed was in April 2020 in the aftermath of the first wave of the coronavirus pandemic.

The LPR is critical because it impacts the lending rates for corporate and household loans.

Market analysts contend that this is evidence that officials are worried about a slowing economy, especially after firing off all fiscal and monetary bazookas.

One of China’s top think tanks, Chinese Academy of Social Sciences (CASS), warned that the economy could come under threat from the property downturn. Not only could the real estate market remain on a downward trend, the developments could affect local government expenditures in 2022.

Meanwhile, this comes after the PBoC Governor Yi Gang and other monetary policymakers cut the reserve requirement ratio (RRR), a mandate of how much banks are required to hold, by 0.5%. This injected more than $100 billion of liquidity into the economy.

Looking ahead on the data front, next week, the National Bureau of Statistics (NBS) will release its manufacturing and non-manufacturing purchasing managers’ index (PMI) readings for December. These numbers are barely expanding, with the November manufacturing PMI coming in at 50.1.

Year-to-date, the yuan has gained more than 2% against the greenback.

The USD/CNY currency pair was unchanged at 6.3757 to close out the Monday trading session. The EUR/CNY rose 0.06% to 7.1934, from an opening of 7.1889.