China expected to stand pat on lending rates in May

By Thomson Reuters May 17, 2024 | 1:15 AM

SHANGHAI/SINGAPORE (Reuters) – China is widely expected to hold benchmark lending rates steady on Monday, a Reuters survey showed, although expectations are growing for a cut in the mortgage reference rate as the authorities scramble to boost housing.

The loan prime rate (LPR), normally charged to banks’ best clients, is calculated each month after 20 designated commercial banks submit proposed rates to the People’s Bank of China.

The survey of 33 market watchers, conducted this week, found 27, or 82% of all respondents, expect the one-year and five-year LPRs to stay unchanged.

Among the other six respondents, four predicted a steady one-year LPR but a five- to 20-basis-point reduction to the five-year tenor, while the remaining two projected similar cuts to both rates.

Most new and outstanding loans in the world’s second-largest economy are based on the one-year LPR, now at 3.45%. The five-year LPR, which serves as the mortgage reference rate, is at 3.95% after a February cut to shore up the property market.

In the latest step to support property, China will allow local government authorities to buy some homes at “reasonable” prices to provide affordable housing, the official Xinhua news agency said on Friday. The property sector and weak retail continued to drag on the economy last month, even as industrial output beat forecasts, data showed on Friday.

The central bank left a key policy rate unchanged when rolling over maturing medium-term lending facility loans on Wednesday, as a weak currency continued to constrain Beijing’s monetary easing efforts.

Some traders argued that the traditional dividend payment season is looming, when overseas listed Chinese companies have to make foreign exchange purchases to fulfil such payouts to their offshore shareholders.

Such FX payments are expected to pile additional downside pressure to the yuan, which has lost about 1.8% to a resurgent dollar this year. HSBC expects $66 billion worth of dividends are set to be made this year.

However, expectations for a cut to the mortgage reference rate are on the rise after the authorities announced a string of measures to rescue the beleaguered property market, long considered a major drag on the economy.

“Further property de-stocking efforts and timely RRR/LPR cuts as well as the push on equipment upgrade and durables trade-in are essential, in our view, to bring back credit demand,” Citi analysts said in a note.

(Reporting by Steven Bian and Winni Zhou in Shanghai and Tom Westbrook in Singapore; Editing by William Mallard)