China set to lower lending benchmarks to revive wobbly economy

  • In Business
  • 2022-08-19 03:35:40Z
  • By Reuters

SHANGHAI (Reuters) - China is widely expected to lower its benchmark lending rates on Monday, a Reuters survey showed, with a vast majority of participants predicting a deeper cut to the mortgage reference to lift the ailing property sector and the overall economy.

The loan prime rate (LPR), which banks normally charge their best clients, is set by 18 designated commercial banks who submit proposed rates to the People's Bank of China (PBOC).

Twenty-five out of 30 respondents in the Reuters snap poll predicted a 10-basis-point reduction to the one-year LPR.

All 30 participants expected a cut to the five-year tenor, with 27, or 90% of them, forecasting a reduction larger than 10 bps. Among them, 15 traders and analysts predicted a 15 bps cut, 10 forecast a 20 bps cut, and the remaining two tipped a 25 bps reduction.

Most new and outstanding loans in China are based on the one-year LPR, which now stands at 3.70%, after a reduction in January. The five-year rate, which was last lowered in May, influences the pricing of home mortgages and is now at 4.45%.

The market consensus of LPR cuts this month comes as the PBOC earlier this week unexpectedly lowered two key interest rates for the second time this year, to try to revive credit demand in the COVID-hit economy.

"We think this may translate to more transmission of easing into the real economy, via potential LPR cuts next week," said Peiqian Liu, chief China economist at NatWest, as the LPR is now loosely pegged to the central bank's medium-term lending facility rate.

"We expect 5Y LPR to be lowered by 15 basis points (bps) while 1Y LPR to be lowered by 10 bps, as banks step up to support the demand for mortgage loans."

The notable dovish tilt in PBOC's monetary policy stance came after a slew of key gauges including credit lending data and activity indicators showed the economy unexpectedly slowed in July.

The loss of growth momentum has raised the challenge facing policymakers amid mounting headwinds including a resurgence of local COVID-19 cases, inflationary pressures and a slowing global economy.

Policy insiders and analysts told Reuters that the PBOC is set to take more easing steps, though it faces limited room to manoeuvre due to worries over rising inflation and capital flight.

"After this small rate cut and likely ensuing LPR cut, the space for the PBOC to cut rates will be quite limited due to a rising interest rate differential between China and the U.S. and squeezed profit margins for banks," said Ting Lu, chief China economist at Nomura.

(Reporting by Li Hongwei and Brenda Goh; Writing by Winni Zhou; Editing by Shri Navaratnam)


More Related News

China underscores commitment to Taiwan, warns interlopers
China underscores commitment to Taiwan, warns interlopers
  • World
  • 2022-09-24 16:58:09Z

"Only when China is fully reunified can there be true peace across the Taiwan Strait," Wang Yi, China's foreign minister, said at the U.N. General Assembly.

China on Taiwan:
China on Taiwan: 'External interference' won't be tolerated
  • US
  • 2022-09-24 16:47:26Z

China underscored its commitment Saturday to its claim to Taiwan, telling world leaders that anyone who gets in the way of its determination to reunify with ...

Pressing priority in Ukraine is to facilitate peace talks, China says
Pressing priority in Ukraine is to facilitate peace talks, China says

UNITED NATIONS (Reuters) -China supports all efforts conducive to the peaceful resolution of the "crisis" in Ukraine, its foreign minister Wang Yi told the...

China FM calls on Russia, Ukraine not to let war
China FM calls on Russia, Ukraine not to let war 'spill over'
  • World
  • 2022-09-24 16:34:01Z

China on Saturday at the United Nations urged Russia and Ukraine not to let effects of their war "spill over" and called for a diplomatic resolution.

Philippines' Marcos Eyes China Compromise on South China Sea

(Bloomberg) -- The Philippines is interested in renewing talks with China on joint oil and gas exploration in the South China Sea to expand and diversify its...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply


  • ghostwriting service
    (2022-08-19 17:36:34Z)

    Despite the fact that I’m not a great writer, provides a fantastic ghostwriting service. They are experts in ebook authoring and editing and can help you with ebook writing and self-publishing


Top News: Business