One of China’s top financial analysts says the country’s lending reference rate (LPR) could be cut further after being flat for three months.
LPRs announced on November 21 were 3.65% for the one-year term and 4.30% for the five-year term, unchanged from the previous month’s prints. In November, the Chinese People’s Republic of China stands for the third month.
Dong Simiao (董希淼), Chief Research Officer of the Agricultural Bank of China (CBC) and Research Fellow at the Institute of Financial Research, Fudan University, the main points Three reasons why China’s LPR was flat in November:
- China’s rating rates remained unchanged in November. On November 15, China’s central bank launched the medium-term lending facility (MLF) and 7-day reverse repo operations at rates of 2.75% and 2.0%, in line with the previous round of open market operations last month.
- Since the beginning of 2022, there have been repeated reductions in the LPR. In 2022, China saw a total of three LPR cuts, bringing the annual LPR down by 15 basis points and the five-year LPR by 35 basis points. These reductions emphasized the guiding role of the reference rate with a marked reduction in the costs of financing the real sector of the economy.
- Credit rates in China are at historic lows. According to the third-quarter monetary policy report released by the People’s Bank of China, the weighted average interest rate on business loans was 4.0% in September, down 0.59 percentage points from the same period last year. the lowest level since then. recordings have begun.
China’s LPR has seen three declines since early 2022 as financial authorities sought to keep the real economy afloat amid renewed Covid lockdowns by cutting borrowing costs.
These cuts included:
- On January 20, the one-year LPR fell 10 basis points to 3.7% and the five-year LPR fell 5 basis points to 4.6%.
- On May 20, the five-year LPR fell 15 basis points to 4.45%, while the one-year LPR was unchanged at 3.7%.
- On August 22, the one-year LPR fell five basis points to 3.65% and the five-year LPR fell 15 basis points to 4.3%.
Dong notes that China’s central bank is taking action in two areas to lower the cost of funds for banks and manage the decline in the LPR:
- A reduction in the reserve requirement ratio, which Dong said markedly lowers the cost of funds for banks and strengthens the “continuity” of transferring profits to the real economy. The weighted average reserve ratio currently stands at 8.1%, leaving room for further declines.
- Lower base rates for open market instruments. A further reduction in base rates for MLF and reverse repo creates the conditions for a reduction in LPR.
https://www.chinabankingnews.com/2022/11/23/why-chinas-benchmark-loan-prime-rate-remained-stationary-in-november/ Why the base rate on loans in China remained unchanged in November