MNI PBOC WATCH: LPR To Hold On Economic Recovery
MNI (BEIJING) - China's Loan Prime Rate is likely to remain unchanged this month as the economy continues to recover, although authorities will likely ease policy later in the year to consolidate momentum and target key sectors, such as the stock market and technology sector.
Authorities will hold the one-year LPR at 3.1% and the over-five-year rate will stay at 3.6% on Thursday. The benchmarks were last lowered in October 2024 by 25 basis points, the largest cuts since the reform of the new LPR pricing system in 2019. (See MNI PBOC WATCH: Easing Paused Ahead Of Two Sessions)
Data released by the National Bureau of Statistics on Monday showed fixed-asset investment and industrial output in the first two months expanded faster than expected, while retail sales rose over December, despite printing lower than estimated, suggesting the economy is recovering.
The data indicated Q1 GDP is likely to print above 5%, in line with Beijing’s 2025 whole-year target of "around 5%" set by the Two Sessions meeting this month, which has lowered the need for immediate monetary easing and will allow the People’s Bank of China to focus on its other mandates.
PBOC TASKS
The central bank will soon expand facilities targeting stock and property markets after Premier Li Qiang’s March 5 Government Work Report highlighted them as a key PBOC’s focus, a shift for the Bank whose support for the sectors has largely been limited to policy coordination with other authorities. (See MNI:PBOC To Buoy Assets, As Stocks, Property Added To Mandate)
The PBOC also plans to launch a bond issuance platform for tech companies and financial institutions to facilitate future competition with the U.S. Yang Chengzhang, member of the CPPCC National Committee, expects the platform to boost issuance modestly at first and grow over time, aligning with the Bank’s objectives to build a multi-tiered market for debt securities and provide a key alternative source of finance for a sector that relies heavily on deposit-funded bank loans.
China also plans to facilitate foreign institutional investors to enter its private equity and venture capital markets in a bid to attract funds for key sectors, including tech companies, Jin Penghui, president of the PBOC Shanghai Head Office, told MNI recently.
FUTURE EASING
However, the PBOC will likely need to ease policy later this year due to persistently soft inflation and weak credit demand. CPI declined by 0.7% y/y in February, while PPI decreased by 2.2% y/y. New bank loans in the first two months also pointed to weak demand.
Zhang Bin, deputy director at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, called on the PBOC to cut interest rates more aggressively, considering low inflation, and continue to support the yuan, noting currency depreciation should not limit its easing. The Government Work Report highlighted subdued price growth due to insufficient domestic demand as a key challenge, which supported the PBOC’s “appropriately accommodative” monetary-policy stance, Zhang said.