China seen keeping 1-yr LPR unchanged, expectations mount for mortgage rate cut

China seen keeping 1-yr LPR unchanged, expectations mount for mortgage rate cut
FILE PHOTO: People look into a window of a shop, outside a mall in Beijing, China, July 13, 2022. REUTERS/Thomas Peter

SHANGHAI : China is likely to keep its benchmark lending rate steady at the monthly fixing on Wednesday, a Reuters survey showed, but a growing number of market participants expect the mortgage reference rate to be cut due to a slump in the property sector.

The loan prime rate (LPR), which banks normally charge their best clients, is set on the 20th of each month, when 18 designated commercial banks submit proposed rates to the People’s Bank of China (PBOC).

Among a total of 22 respondents in the Reuters snap poll, all of them predicted no change to the one-year LPR.

Most new and outstanding loans in China are based on the one-year LPR, which now stands at 3.70 per cent.

“The window to cut rates has now closed, as CPI edges closer to PBOC’s 3.0 per cent target amid peak Federal Reserve hawkishness,” economists at Union Bancaire Privee (UBP) said in a note.

They expected the PBOC to keep the one-year LPR unchanged, while continuing to provide support for the economy in the second half ot the year, most likely through “targeted reserve requirement ratio (RRR) cuts and faster M2 and credit growth.”

However, nine traders and analysts, or about 40 per cent of all participants, forecast a reduction in the five-year tenor. The five-year rate influences the pricing of mortgages and is currently 4.45 per cent.

Some analysts expect the authorities would look to offer some kind of support to the property sector following a scare caused by the proliferation of threats by homebuyers to withhold payments for stalled projects.

“I expect a cut to the five-year LPR as the recent mortgage boycotts have certainly created some pressure,” said a trader at a brokerage in Shanghai.

China slashed the five-year LPR by an unexpectedly wide margin of 15 basis points in May, its second reduction this year, as Beijing sought to revive the ailing housing sector to prop up the economy.

 

Source: Reuters