Standard Chartered On Today’s LPR Fixings

In the wake of today’s LPR fixings Standard Chartered note that “these moves show the authorities’ strong desire to support the real estate sector (as the 5-Year LPR rate is primarily used for mortgage loan benchmark rates, and seldom used for other loans). It also suggests that more needs to be done to lower commercial banks’ overall liability costs, in order to lower 1-Year LPR rate (which is the benchmark for the bulk of corporate loans).”

• “We see the PBoC maintaining very accommodative interbank liquidity conditions for an extended period of time, with secondary rates staying materially below OMO rate. We see the authorities stepping up measures to lower commercial banks’ conventional deposit rates such as further lowering the term deposits rate ceiling in the immediate future.”
• “We see low probability for additional MLF rate cuts, given CNY-USD rate divergence (with CNY rates lower) and still strong capital outflows noted. But we see room for both the 1- and 5-Year LPRs to be lowered further in the coming month amid very weak loan demand - local media reported that loan demand has stayed very weak so far in May, following a sharp slowdown in April. “
• “The historic cut of the 5-Year LPR and very accommodative liquidity conditions could provide some alleviation to China rates, with the curve likely bull flattening slightly after material steepening previously. The market May delay its expectation for the return of strong credit growth, while strong primary supply has been largely priced in.”