Economy
China seen cutting key lending benchmarks as economy slows
China is widely expected to cut key lending benchmarks on Tuesday in the first such easing in 10 months, a Reuters survey showed, as authorities seek to shore up a slowing recovery in the world’s second-largest economy.
Recent economic data showed the retail and factory sectors struggling to sustain the momentum seen in the first quarter, raising concerns China’s post-COVID comeback could ground to a halt this year and trigger massive job losses.
The People’s Bank of China (PBOC) lowered short- and medium-term policy rates last week, signalling it is about to embark on another round of loosening in monetary settings in a push to rev up the recovery.
In a poll of 32 market watchers, all participants predicted cuts to both the one-year loan prime rate (LPR) and the five-year tenor.
Twenty-one, or nearly 66%, of all respondents expected the one-year LPR – on which most new and outstanding loans are based – to be cut by 10 basis points to 3.55% from 3.65%. Others projected the cut to range from five to 15 bps.
Meanwhile, 16, or half, of the analysts and traders surveyed by Reuters, said they forecast a deeper cut of at least 15 bps to the five-year LPR, which serves as mortgage reference rate, to stimulate housing demand and prop up the property sector. Another 14 respondents predicted the five-year tenor to be cut by 10 bps to 4.2% from 4.3% currently.
China last cut both LPRs in August 2022.
“Traditionally, cuts to the medium-term lending facility (MLF) and open market operations (OMO) rates mean that we can expect a similar sized cut to the bank prime loan rate relatively soon,” said David Chao, global market strategist for Asia Pacific at Invesco.
“However, the biggest risk is that rate cuts can be ineffective when households and businesses are excessively conservative, busy deleveraging and paying off debt.”
Chao expects policymaker to introduce additional targeted fiscal and stimulus measures.
China’s cabinet met on Friday to discuss measures to spur growth in the economy and pledged to roll out more policy support.
Despite strong consensus of cuts to the LPR on Tuesday, market participants are divided on the size of the reductions. Some expect the mortgage reference rate could be trimmed by a deeper cut to aid the ailing property sector.
“We are expecting an asymmetric cut with five basis points in one-year LPR and 15 bps in five-year LPR, as the property sector is clearly warranting more policy support,” Citi analysts said in a note.
“We continue to see the July Politburo meeting as a window to watch if more significant moves are following.”
Several global investment banks cut their 2023 gross domestic product growth forecasts for China after May data showed the post-COVID recovery was faltering.
The LPR normally charged to banks’ best clients is calculated each month after 18 designated commercial banks submit proposed rates to the central bank.
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
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.
© 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)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
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.
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