I posted a preview here earlier:
Reuters polling shows:
- In a poll of 27 market watchers, 17 or 63% of all participants predicted no change to either one-year LPR or the five-year tenor.
- Among the remaining 10 respondents who expect some monetary easing this month, eight forecast a cut to the five-year tenor while seeing no change to the one-year LPR. The other two projected reductions to both tenors.
On that potential cut to the 5-year, I am sympathetic. We've heard plenty from China about further stimulus support, especially for the property sector. The last time the LPRs were cut was back in August. Currently the one-year LPR is 3.65% and the 5-year is 4.30%. While the 1-year LPR is the basis for most new and outstanding loans in China, the 5-year is of particular influence on the pricing of mortgages. A cut to the 5-year would be, in effect, support for the property sector, at the margin.
Reuters add thoughts from Citi on the LPRs today:
- "December's reserve requirement ratio (RRR) cut could have created room for near-term LPR cut, especially at the 5-year tenor," Citi analysts said in a note.
- "We think the efforts to support the economy (especially the home market) should be delivered sooner rather than later," they added, expecting a 10-basis-point reduction to the mortgage reference rate.
Arguing against a cut to either of the LPRs though is:
1. Last week the rate on the latest MLF was left unchanged,
- PBOC conducts 650bn yuan one year MLF at an unchanged rate of 2.75%
- More on the PBOC MLF cash injection earlier today
and 2. Despite policy moves in China funding costs remain elevated. This is likely to see banks may be reluctant to offer lower quotes on the five-year Loan Prime Rate (LPR):
- reminder: The loan prime rate (LPR), which banks normally charge their best clients, is calculated each month after 18 designated commercial banks submit proposed rates to the People's Bank of China (PBOC).
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Decision 0115 GMT.
