Economy

China cuts lending benchmarks to revive slowing demand

Published

1 year ago

June 20, 2023

China cut its key lending benchmarks on Tuesday, the first such reductions in 10 months as authorities seek to shore up a slowing economic recovery, although concerns about the property market meant the easing was not as large as expected.

The latest monetary loosening comes as a post-pandemic recovery in the world’s second-largest economy shows signs of losing the initial momentum seen in the first quarter.

The one-year loan prime rate (LPR) was lowered by 10 basis points to 3.55%, while the five-year LPR was cut by the same margin to 4.20%.

While all 32 participants in a Reuters poll had expected reductions to both rates, the cut to the five-year rate was smaller than many expected.

“These cuts will lower the cost of new loans, as well as interest payments on existing loans,” said Julian Evans-Pritchard, head of China economics at Capital Economics.
“That should offer some modest support to economic activity. But we think it is unlikely to drive a sharp acceleration in credit growth, given weak credit demand.”

The smaller-than expected cut disappointed investors with the Hang Seng Mainland Properties Index dropping 3.61%, outpacing a fall in the benchmark Hang Seng Index. The Chinese currency lost as much as 0.25% and broader Asian stocks markets also dipped.

The People’s Bank of China (PBOC) lowered short- and medium-term policy rates last week.

The medium-term lending facility (MLF) rate serves as a guide to the LPR and markets mostly see the medium-term rate as a precursor to any changes to longer-term lending benchmarks.

Xing Zhaopeng, senior China strategist at ANZ, said the smaller-than-expected cut to five-year tenor suggests authorities are wary of using the property market as a form of short-term stimulus, which could create new bubble risks.

“It shows that the policy still gives priority to the new economy, and it will only ensure a soft landing of the old economy rather than re-stimulation,” Xing said.

Xing added that new stimulus could combine short-term measures and long-term reforms, with more details and measures to be announced in coming weeks.

China’s cabinet met on Friday to discuss measures to spur growth in the economy and pledged more policy support.

“More policy measures may be rolled out separately, including but not limited to a 25 basis point cumulative cut to the LPR by the year-end, and property-easing measures to cut payment ratios or mortgage rates, as well as some form of consumption support,” analysts at BofA global research said in a note.
“Such marginal easing will probably help prevent growth from slowing sharply, but will unlikely offer a strong boost to reverse the growth slippage in the near future,” they said, downgrading their forecasts for China’s economic growth outlook for this year to 5.7% from 6.3% previously.

Several global investment banks cut their 2023 gross domestic product growth forecasts for China after May data showed the recovery was faltering.

“There is still a possibility of further interest rate cuts and reserve requirement ratio (RRR) cuts in the remainder of this year,” said Bruce Pang, chief economist and head of research for Greater China at Jones Lang LaSalle.
“There is no need to roll out all policy measures all at once.”

The LPR, which banks normally charge their best clients, is set by 18 designated commercial banks who submit proposed rates to the central bank every month.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages. China last cut both LPRs in August 2022 to boost the economy.

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

9 months ago

December 26, 2023

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.

The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.

Economy

China identifies second set of projects in $140 billion spending plan

Published

9 months ago

December 25, 2023

China identifies second set of projects in $140 billion spending plan

© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo

SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.

With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.

The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.

China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.

The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.

“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.

The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.

($1 = 7.1315 renminbi)

Economy

Russian central bank says it needs months to make sure CPI falling before rate cuts -RBC

Published

9 months ago

December 25, 2023

Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.

“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.

Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.

“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.

The bank will next convene to set its benchmark rate on Feb. 16.

The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.