China lowers loan prime rate as widely expected
SHANGHAI: China lowered its lending benchmark rate yesterday, as widely expected, to reduce company funding costs and shore up an economy hurt by slowing demand and US trade tariffs.
The cut was the second to a key Chinese rate this week and came a day after central bank governor Yi Gang said Beijing would step up credit support and lower real lending rates, as pressure on the world’s second-largest economy increases.
With growth sliding to near 30-year lows and a partial trade deal with the United States proving elusive, China has slowly picked up its tempo of policy easing in recent weeks, with authorities pushing banks to keep supporting cash-strapped small- and mediumsized businesses.
The pruning of the loan prime rate (LPR) followed China’s first cut in a short-term market rate in four years on Monday, suggesting the start of “a new easing cycle”, said Ji Tianhe, China head of foreign exchange and local markets strategy at BNP Paribas in Beijing, who says there is room for rates to go lower.
The one-year LPR, a rate set by the People’s Bank of China based on quotes from a panel of banks, fell five basis points to 4.15% from 4.20% in October. The five-year LPR was lowered by the same margin to 4.80% from 4.85%.
The one-year LPR has now been reduced three times since it became the official lending benchmark in August, and this week’s twin cuts suggest the PBoC is keen to push ahead with lowering financing costs across the curve despite pressures on inflation from rising pork prices from an outbreak of African Swine Fever.
All 64 respondents in a Reuters snap survey this week had predicted a reduction in the one-year LPR, which is set on the 20th of each month. Thirty-seven respondents also expected the five-year rate to be cut for the first time.
The lowering of the five-year rate, which is used to price housing mortgages, could suggest policymakers may be softening their cautious regulatory stance toward the property market, a major growth driver in the past, Capital Economics said in a research note.
“With the prop from recent monetary easing likely to be underwhelming and headwinds to economic growth mounting, we think the PBoC will start to cut rates more aggressively in the coming months,” Martin Lynge Rasmussen, China economist at Capital Economics, said in a research note.
Top policymakers had vowed in July they would not use the property market as a form of short-term stimulus, which would risk an even sharper build-up in debt and property bubbles.
The global debt load has surged $78 billion since 2008, and China alone has accounted for 40% of the increase, according to a recent report by the Institute of International Finance (IIF).
China’s government has pledged not to open the floodgates to massive stimulus as it did in the past, and has largely leaned on a prescription of higher infrastructure spending, tax cuts and frequent liquidity injections to cushion the current slowdown.