China has eased key credit benchmarks as the economy slows

SHANGHAI/SINGAPORE, June 19 (Reuters) – China is widely expected to ease key debt benchmarks on Tuesday in the first such easing in 10 months, a Reuters survey showed, as authorities try to boost a slow recovery in the world’s second-largest nation. economy.

The latest economic data showed the retail and manufacturing sectors struggling to maintain the momentum seen in the first quarter, raising concerns that China’s post-Covid comeback could stall this year and trigger massive job losses.

The People’s Bank of China (PBOC) cut short- and medium-term policy rates last week, setting off another round of easing in monetary policy in a bid to boost the recovery.

In a survey of 32 market watchers, all participants predicted reductions in both the one-year loan prime rate (LPR) and the five-year term.

Twenty-one, or nearly 66%, of respondents expected the one-year LPR – based mostly on new and outstanding loans – to be cut by 10 basis points from 3.65% to 3.55%. Others predict a cut of five to 15 bps.

Meanwhile, 16, or half, of analysts and traders polled by Reuters said they forecast a deep cut of at least 15 bps in the five-year LPR, which serves as the mortgage benchmark rate, to stimulate housing demand and boost property. Dept. Another 14 respondents predicted a 10 bps cut in the five-year term to 4.2% from the current 4.3%.

China last lowered both LPRs in August 2022.

„Traditionally, cuts in the medium-term lending facility (MLF) and open market operations (OMO) rates can expect a similar level of reduction in bank prime lending rates relatively soon,” said David Chau, global market strategist for Asia. Pacific at Invesco.

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„However, the biggest risk is that rate cuts will be ineffective when households and businesses are overly conservative, busy deleveraging and paying down debt.”

Chao expects policymakers to introduce additional targeted funding and stimulus measures.

China’s cabinet met on Friday to discuss measures to stimulate growth in the economy and pledge to release more policy support.

Despite the tight consensus for the LPR on Tuesday, market participants are divided over the magnitude of the cuts. Some expect a deep cut in mortgage benchmark rates to help the ailing property sector.

„We expect an asymmetric reduction of five basis points in one-year LPR and 15 bps in five-year LPR as the property sector clearly confirms higher policy support,” Citi analysts said in a note.

„We continue to view the July Politburo meeting as a window to see if more significant moves follow.”

Several global investment banks have cut their GDP growth forecasts for China in 2023.

After the 18 designated commercial banks submit the proposed rates to the central bank, the LPR, which is generally charged to the banks’ best customers, is calculated every month.

Reporting by Li Hongwei, Winni Zhou and Tom Westbrook; Editing by Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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