China cuts key rates, stepping up monetary stimulus effort to underpin economy

Shanghai, Jan 20 (BNA): China stepped up its monetary easing efforts to support a sluggish economy this week by lowering a set of key policy rates and lending standards, and markets believe Beijing can back down further before growth slows.

With the decline in real estate continuing into 2022 and the rapidly spreading variable Omicron dampening consumer activity, many analysts expect that further easing measures will be necessary, despite other major economies, including the United States, seemingly intent on tightening their monetary policies. year, Reuters reported. .

The one-year loan prime rate was reduced by 10 basis points to 3.70% from 3.80%. The five-year LPR was reduced by 5 basis points to 4.60% from 4.65%, the first reduction since April 2020.

The LPR cuts were expected after official comments calling for more monetary easing to support the broad economy.

All 43 respondents to a Reuters poll predicted a one-year reduction in LPR for the second month in a row. Among them, 40 participants also expected a five-year decrease in LPR. Read more

Marco Sun said the cut in the 5-year LPR indicates that “the Chinese authorities are keen to reduce the cost of credit lending, so overall credit growth is expected to rebound after the Spring Festival to ease the pressure on the macro economy.” Chief Financial Analyst at MUFG.

“China’s monetary policy still has room to ease in the first half of this year, depending on the impact of the policy transition and the growth target set by the annual parliamentary meeting in March.”

People’s Bank of China Vice Governor Liu Guoqiang said on Tuesday that China’s central bank “must speed up, make our operations forward-looking, move ahead on the market curve, and respond to general market concerns in a timely manner.” Market expectations for more stimulus to help stabilize the economy. Read more

Sheana Yue, China economist at Capital Economics, expects to cut another 20 basis points to the one-year LPR during the first half of this year.

Liu’s comments came on the heels of unexpected reductions in borrowing costs for short and medium-term loans this week, after economic data for December showed further weakness in consumption and the troubled real estate sector, both key drivers of growth. Read more

The interest rates on the Medium Term Lending Facility (MLF) have become a guideline for the interest rate on loans. Market participants believe that moves to LPR should mimic adjustments to MLF rates.

Most of the new and outstanding loans in China are based on the one-year LPR. The five-year rate affects the pricing of mortgages.

MI