LPRs Expected To Shift 10bp Lower This Month, 5-Year Could Move More

The BBG median looks for this month’s 1- & 5-Year Loan Prime Rate (LPR) fixings to set 10bp lower, respectively, in the wake of last week’s surprise 10bp cuts to the interest rates applied to the PBoC’s 1-Year MLF and 7-day reverse repo operations. The fixings will cross at 02:15 London time (09:15 Hong Kong).

• That would leave the 1-Year LPR at 3.60% and the 5-Year LPR at 4.35%.
• The clear risk to the consensus calls seems to be a larger than expected fall in the 5-Year LPR fixing in a bid to support the property sector. Indeed, the modal outcome of the BBG survey covering the 5-Year LPR fixing is a 15bp cut (7 of the 20 surveyed look for such a move).
• Still, May saw the 5-Year LPR fix 15bp lower in what was another surprise move, given that there was no pre-cursor in the form of an MLF or reverse repo rate cut, which may limit the need for an outsized shift lower in the fixing this time around.
• Note that all 20 surveyed look for a 10bp cut to the 1-Year LPR.
• A reminder that last week’s round of surprise PBoC easing came on the heels of very soft Chinese monthly credit data, with supply and demand side worries evident there, and crossed just ahead of soft monthly economic activity data.
• Since then, Chinese Premier Li Keqiang urged the country’s economic powerhouse regions to take the lead in stabilising growth, with the economy currently sitting at the most arduous point of its recovery.
• The sell-side has conducted the latest round of cuts to GDP growth estimates in the wake of the aforementioned developments, with worry surrounding a liquidity trap in China clearly on the rise.