December Cut To 5-Year LPR Possible Without  Lower MLF

The PBOC is not expected to cut its MLF policy rate in December as the easing of Covid restrictions and recent lowering of the reserve requirement ratio (RRR) will support the economy until year-end, according to Shanghai Securities News citing economists. Views are divided on whether the RRR cut will be enough for banks to lower the above-5-year loan prime rate (LPR) in December without the need for the PBOC to cut the rate on its medium-term lending facility (MLF) given very low net interest margins at the banks. One economist said commercial bank deposit rate cuts in September, coupled with the lower RRR, will lead to cut in the above-5-year LPR in December. A MLF cut in January will depend on factors such the strength of the property market and the outlook for U.S. interest rates.