New and outstanding loans are based on the one-year lending rate, while the five-year rate influences mortgages
[SHANGHAI] China is expected to leave its benchmark lending rates unchanged for the eighth straight month in January, a Reuters survey with 22 respondents showed.
But some traders are betting on a policy rate cut in the first half, to underpin an economy struggling to fire on all engines.
The central bank announced on Thursday (Jan 15) cuts to sector-specific interest rates to provide an early boost to the economy, and signalled that it has room this year for further reductions in banks’ cash reserve requirements, and for broader rate cuts.
Several market participants said that a policy rate cut remains possible in the first quarter, which would likely drag the loan prime rates (LPRs) lower in tandem.
All the respondents said that they expected the one-year and five-year LPRs to remain steady on Tuesday at 3 per cent and 3.5 per cent, respectively.
“The probability of a January LPR reduction is low. The latest cuts to structural tools suggest the central bank isn’t ready to move broad policy levers yet,” said a trader at a bank in East China who declined to be named, adding that February “is worth watching” for a possible policy rate move.
Navigate Asia in
a new global order
Get the insights delivered to your inbox.
An analyst at a Shanghai private fund also flagged a first-quarter window for monetary easing, saying that if policymakers send a clearer pro-growth signal, “we can’t rule out trimming policy rates first and then guiding LPR lower”.
China’s economy grew 5 per cent last year, meeting the government’s target by seizing a record share of global demand for goods to offset weak domestic consumption, a strategy that blunted the impact of the US tariffs but is increasingly hard to sustain.
LPRs, normally charged to banks’ top clients, are calculated each month after 20 designated commercial banks submit their proposed rates to the People’s Bank of China.
Most of the new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.
The domestic demand has remained sluggish at best in the past year, due to low confidence amid a protracted property crisis.
China’s new home prices extended their decline in December, official data showed on Monday, underscoring persistent strains in the property sector, despite the repeated government pledges to stabilise it. REUTERS
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
