PBOC Leads Major Rate Reductions Amid Efforts to Revive Growth
Chinese banks have reduced their benchmark lending rates following the central bank's easing measures at the end of September. This is part of a broader effort to boost economic growth and address the ongoing slump in the housing market.
The one-year loan prime rate (LPR) has been cut from 3.35% to 3.10%, while the five-year LPR has been lowered from 3.85% to 3.60%.
The cuts were at the higher end of the 20-25 basis point range forecasted by Pan Gongsheng, the Governor of the People’s Bank of China (PBOC), in his recent speeches. This reduction is larger than the 20 basis points projected by economists surveyed by Bloomberg.
The reduction in the LPR, which is determined by major Chinese banks, follows the PBOC's initiatives to stimulate borrowing among households and businesses. These measures include lowering interest rates and enhancing liquidity to encourage bank lending.
Beckly Liu, head of China macro strategy at Standard Chartered Plc, commented, "The larger cuts affirm the PBOC's swift shift toward easing monetary policy, aligning with the Politburo's intention to lower rates more aggressively."
The offshore yuan remained relatively stable at around 7.12 per dollar, while the 30-year government bond yield saw minimal change at 2.3% amid limited trading activity.
During a September Politburo meeting, China's top officials emphasized significant interest rate cuts and measures to stabilize the real estate sector, signaling their strongest commitment yet to support this vital industry.
Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc., noted that the unexpected scale of the LPR cuts aims to stabilize the property market further.
### More Easing Expected
The PBOC has hinted at additional easing measures. Pan mentioned that the central bank may further lower the reserve requirement ratio by 25 to 50 basis points by year-end, depending on liquidity conditions.
Regarding interest rates, further reductions are anticipated next year, given the recent large-scale cuts. However, Xiaojia Zhi, head of research at Credit Agricole CIB, mentioned that if significant negative shocks impact growth or financial markets, the PBOC may adopt more aggressive easing measures.
Most loans in China, both new and existing, are based on the one-year LPR, while the five-year rate influences mortgage rates and other long-term lending.
China's largest state-owned banks have also lowered their deposit rates, seeking to offset the impact of reduced loan rates on their profit margins.
