MNI PBOC WATCH: LPR Holds As Property Stimulus Strengthened
The PBOC's latest measures to boost the property sector will likely reduce the need for a lower LPR, particularly among the five-year maturity.
Chances China's Loan Prime Rate could see a cut in the near term have lowered thanks to the central bank’s recently announced property market stimulus and its additional focus on the sector.
The Loan Prime Rate, based on the People’s Bank of China’s medium-term lending facility (MLF) rate and quotes submitted by 20 banks, remained at 3.45% for the one-year and 3.95% for the over five-year maturity on Monday. The decision was largely anticipated. (See MNI PBOC WATCH: May LPR To Remain Steady As Market Rates Fall )
The LPR has remained unchanged since February when the five-year plus maturity was reduced 25 basis points, while the one-year tenor held steady.
PROPERTY FOCUS
The PBOC introduced a range of new measures on Friday to stabilise the real-estate market from both supply and demand sides. The measures included the nationwide removal of the lower limit on mortgage interest rates, a 25 basis point reduction to the housing provident fund loan interest rates and a 5 percentage point reduction to the minimum down-payment ratio for house purchases.
The Bank also unveiled a CNY300 billion re-lending program for affordable housing, with a rate of 1.75%, to help local governments “de-stock” legacy properties.
Tao Ling, deputy-governor at the PBOC, told reporters on Friday the new targeted tool would leverage CNY500 billion in bank loans. (See MNI INTERVIEW: China To Contain Property Spillover - Advisor)
The measures will likely reduce the need for a lower LPR, particularly among the five-year maturity.
The PBOC-operated media service, Financial News, reported on Monday mortgage rates could significantly decrease should most cities nationwide remove the lower limit on mortgage interest rates. The Bank's new measures will help release demand among those buyers that want to get into the market and others that want to upgrade, and ease the repayment pressure on real-estate companies, the paper noted, citing anonymous experts.
CUT CHANCES LOWER
Policy rate cuts are unlikely unless the economic recovery suffers further headwinds in Q3. Indicators, except those closely linked to the property sector, have illustrated a stable scenario, including Q1’s better-than-expected 5.3% y/y GDP growth, robust exports, and moderately upward CPI. Investment is also expected to outperform as government debt issuance accelerates from Q2 onwards.
The record low bank loan rates also make a cut less urgent. According to the PBOC, the weighted average interest rate for new corporate loans dropped to 3.76% in April, 23bp lower than the same period last year, while that of mortgage interest rates fell to 3.7%, 48bp lower than last April. In this environment, a further LPR cut will squeeze commercial bank interest margins.
In the short term, the central bank will keep liquidity sufficient and monitor domestic economic trends and changes in overseas policies. Opportunity for a reserve requirement ratio and interest rate cut, however, could present itself later in the year.