China seen preserving benchmark lending rates in January
CHINA is expected to keep its benchmark lending rates unchanged for a fifth consecutive month in January, a Reuters survey showed, although analysts think cuts next month are probable after the People’s Bank of China (PBOC) pledged steps to boost a Covid-ravaged economy.
A cut to the loan prime rate (LPR) on Friday (Jan 20) has been made unlikely by the upcoming golden week holiday, the central bank’s decision to leave its policy rate unchanged this week, and a new mortgage rate mechanism.
Capital Economics chief Asia economist Mark Williams said: “The upcoming LPR announcement, on the last working day before the Chinese New Year break, may not be the best moment.” He added that it would be more likely for a cut to be announced next month.
Some 64 per cent of market watchers in a Reuters poll this week predicted no change to benchmark LPRs, which serve as the pricing reference for bank lending.
The one-year LPR currently stands at 3.65 per cent, while the five-year LPR is 4.3 per cent. China last cut both LPRs in August 2022.
Meanwhile, 33 per cent of market watchers polled forecast a cut to the five-year LPR, while seeing no change to the one-year tenor. Only one respondent predicted a cut to the one-year LPR.
China’s economy grew just 3 per cent in 2022, far below the official target. But the government’s abrupt end to its zero-Covid policy has fanned hopes of a robust recovery.
Analysts also noted that there was less urgency to implement cuts to the five-year LPR — a reference rate for mortgages — after China this month established a dynamic adjustment mechanism on mortgage rates for first-time home buyers.
Aimed at boosting a struggling property sector, the mechanism allows cities to lower or abolish the PBOC-mandated mortgage floor rate, to stem consecutive months of home price declines.
The LPR is calculated each month after 18 designated commercial banks submit quotes to the National Interbank Funding Centre, a PBOC affiliate. REUTERS
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