In a key announcement, People’s Bank of China officials cut the country’s benchmark interest rate by 25 basis points, taking the rate to 6.31%.  The rate cut is the first in almost 4 years, as Chinese officials are struggling to maintain growth in a country that is in the midst of a soft landing.  Incidentally,the decision also comes ahead of economic data releases for the Asian country.  Specifically, retail sales, industrial production and consumer price index figures are scheduled for release today.

Although the Chinese economy is first and foremost likely to benefit from the decision, several other economies are additionally set to reap benefits from the rate reduction.  Particularly, Australia and Singapore.

Australian exports have remained widely dependent on the Chinese economy in the last several years, with Chinese manufacturing companies clamoring for raw materials produced by Australia – specifically iron ore and coal.  China’s demand for these resources have supported a surge in the mining sector, which has in turn reinforced healthy rates of expansion in the Pacific economy – 2.7-3% gains in GDP over the last three years.  With additional monetary easing coming in the Chinese economy, China’s manufacturers may return to pre-2010 levels of production, helping to boost demand for Australian raw materials – and thus the country’s currency.

The sentiment is likely to buoy fortunes in Singapore, but not for raw materials.  Singapore’s fortunes are tied to the Asian powerhouse by means of association, with Singapore’s economy already seeing stabilized growth through an increase in service sector activity and manufacturing.  According to recent manufacturing surveys, Singaporean manufacturing returned expansionary figures last month – adding to already nascent signs of expansion.  The Singapore economy surged by a 9.9% annualized pace in the first quarter of this year.  Should expansion return to the Chinese economy, it would already bolster rising notions of the country’s growth for this year, and increase the Singapore central bank’s tolerance for short term currency appreciation.

Ultimately, although China’s recent decision is likely to boost short term prospects for the Chinese, it is more than likely to see positive reverberations in trade partners throughout the region.  The notion will continue to support already emerging signs of a turn in the fortunes of both the Singapore and Australian dollars.

More on Asian currencies - South Korean GDP Rises In Line