MNI PBOC WATCH: Sept LPR Holds Steady, Further Cuts In Sight

MNI (BEIJING) - The People’s Bank of China is planning additional measures to lower funding costs and boost credit demand as concern grows over meeting the government’s 5% 2024 GDP growth target and despite lender’s narrowed interest margin, which will continue to limit significant easing. 

China's Loan Prime Rate remained unchanged on Friday at 3.35% for the one-year maturity and 3.85% for the over five-year tenor. Both rates unexpectedly fell in July by 10 basis points after the central bank lowered the 7-day reverse repo rate by the same level. MNI reported this week the LPR would likely hold steady. (See MNI PBOC WATCH: LPR To Hold, More Easing Eyed On Fed Cut)

Zou Lan, head of the monetary policy department at the PBOC, told reporters early this month that lenders’ narrowing interest margins and the fast flow of banks’ deposits into asset-management products would contain rate cuts, even though room existed for a reserve requirement ratio reduction. 

The Bank also needs time to evaluate the impact of July’s cut before unveiling new measures, particularly with both corporate-loan and household mortgage rates at already historical lows. 

FUTURE EASING

However, the chance for further easing is increasing as recent economic and credit data have pointed to falling domestic demand and deflation, while both corporate and household credit appetite remain soft. 

The Bank has also changed its policy stance from “prudent” to “accommodative” in recent months and pledged to make additional efforts to reduce financing costs across the economy in a rare public statement last week after the release of disappointing money supply data, and following President Xi Jinping’s call to ensure the achievement of the 5% GDP target for the year. 

Policy advisors and economists told MNI the Bank could cut RRR by 25-50bp as soon as this month and reduce the 7-day reverse repo rate by 10-15bp later this year, guiding down LPR. (See MNI: Fed Cut To Help PBOC Ease, Yuan Strengthen )

The Federal Reserve’s 50bp cut to its benchmark rate will also give the PBOC more room to ease as capital outflow softens and the yuan strengthens.