China cuts lending standards to revive volatile economy

People wearing protective masks visit a major shopping area following a new case of the novel coronavirus disease (COVID-19) in Shanghai, China, January 21, 2022. REUTERS/Aly Song

SHANGHAI (Reuters) – China is widely expected to cut its benchmark lending rate on Monday, with an overwhelming majority of participants hoping to boost a struggling property sector and economy overall, according to a Reuters poll. , expects to further reduce references to mortgages. .

The Loan Prime Rate (LPR) that banks typically charge to their best customers is set by 18 designated commercial banks who submit their proposed rates to the People’s Bank of China (PBOC).

In a Reuters snap poll, 25 out of 30 respondents predicted a 10 basis point decline in LPR over the year.

All 30 participants expected a cut in the 5-year rate, and 27 of them, or 90%, expected a cut of more than 10 bps. Of those, 15 traders and analysts predicted a rate cut of 15 basis points, 10 predicted a rate cut of 20 basis points, and the remaining two predicted a rate cut of 25 basis points.

Most of China’s new and outstanding loans are based on the 1-year LPR, which is now at 3.70% after being lowered in January. The 5-year interest rate, last cut in May, has impacted mortgage pricing, now at 4.45%.

The market consensus for this month’s LPR cut came after the PBOC unexpectedly cut two major interest rates earlier this week twice this year in an attempt to revive credit demand in a COVID-hit economy.read more

“We believe this could lead to a spillover of easing to the real economy through a potential LPR cut next week,” said NatWest Chief China Economist Peichian Liu. rate.

“We expect the 5-year LPR to be reduced by 15 basis points (bps) and the 1-year LPR to be reduced by 10 bps as banks step up to support demand for mortgage loans.”

The marked dovish trend in the PBOC’s monetary policy stance came after key indicators such as credit data and activity indicators unexpectedly showed an economic slowdown in July.

The loss of growth momentum poses a challenge facing policymakers amid mounting headwinds such as a resurgence of domestic COVID-19 cases, inflationary pressures and a slowing global economy.

Policymakers and analysts told Reuters that rising inflation and fears of capital flight limited the room for action by the People’s Bank of China (PBOC), but they planned to ease further.read more

China’s CEO Ting Lu said, “After this small interest rate cut and the likely subsequent LPR cut, the widening spread between China and the United States has put pressure on banks’ profit margins. , the PBOC will have very limited room to cut rates.” Nomura economist.

Reporting by Li Hongwei and Brenda Goh. Written by Winni Zhou Edited by Shri Navaratnam

Our Standards: Thomson Reuters Trust Principles.