MNI PBOC WATCH: LPR To Ease 50bp In 2025
MNI (BEIJING) - China’s reference lending rate is likely to fall about 50bp in 2025 as the central bank pushes to reduce funding costs across the economy and stoke demand, despite persistent concerns over record low long-term bond yields and the yuan’s depreciation.
The Loan Prime Rate remained unchanged on Friday at 3.1% for the one-year maturity and 3.6% for the over five-year tenor. The one-year LPR has fallen by 35bp from 3.45% this year, while the five-year rate has dropped 60bp from 4.20%, the largest annual cuts on record. (See MNI PBOC WATCH: LPR To Hold, 2025 Easing Eyed）
Former PBOC officials told MNI the People's Bank of China is likely to cut its benchmark 7-day reverse repo rate by about 40bp over 2025, starting from Q1, guiding the LPR down by about 50bp. The reserve requirement ratio could also see a cumulative 100bp of easing. (See MNI: PBOC To Make Q1 Cut After Stance Shift-Former Officials)
FURTHER EASING
The PBOC may cut RRR by 25-50bp at the end of the year, interbank traders warned, pointing to rising seasonal fund demand and more concern over liquidity.
The Central Economic Work Conference flagged stable prices as a key focus next year. The PBOC will work to boost consumption and investment to support sluggish CPI and declining PPI.
However, the rapid drop of long-dated bond yields will likely restrain easing. Both the 10- and 30-year treasury yields have fallen to a record low, prompting the PBOC on Wednesday to warn financial institutions to watch their fixed-income market risk, and pledging to crack down on any illegal operation.
The yuan is also facing pressure following the expansion of the China-U.S interest-rate differential to 278bp, its widest level since 2002. The PBOC continues to use a stronger-than-expected daily fixing to guide the onshore yuan spot price, while major banks have increased their dollar liquidity injection in the offshore market to stabilise offshore yuan.