Sign up now for FREE unlimited access to Reuters.com Register SHANGHAI, Aug 22 (Reuters) – China cut its key lending rate and cut mortgage reporting by a wider margin on Monday, adding to last week’s easing measures, as Beijing steps up efforts to revive an economy battered by the real estate crisis and the covid resurgence. The People’s Bank of China (PBOC) is walking a tightrope in its efforts to revive growth. Offering too much stimulus could increase inflationary pressures and the flight of venture capital as the Federal Reserve and other economies aggressively raise interest rates. read more However, weak credit demand is forcing the PBOC’s hand as it tries to keep China’s economy in balance. Sign up now for FREE unlimited access to Reuters.com Register The one-year benchmark lending rate (LPR) fell 5 basis points to 3.65% in the central bank’s monthly fix on Monday, while the five-year LPR fell 15 basis points to 4.30%. The one-year LPR last fell in January. The five-year term, which was last cut in May, affects mortgage pricing. “Overall, the impression we get from all the recent PBOC announcements is that policy is easing but not dramatically,” said Sheana Yue, China economist at Capital Economics. “We forecast two more 10bps cuts in PBOC policy rates in the remainder of this year and continue to forecast a reduction in the reserve requirement ratio (RRR) next quarter.” The LPR cuts come after the PBOC surprised markets last week by cutting the medium-term lending facility (MLF) rate and another short-term liquidity tool, as a raft of recent data showed the economy was losing momentum amid slowing global growth and growth of borrowing costs. read more Hong Kong-listed Chinese developer shares (.HSMPI) rose 1.7%, while China-listed property shares (.CSI000952) were relatively flat in morning deals. However, concerns about a widening policy divergence with other major economies dragged the Chinese yuan to near two-year lows. The onshore yuan last traded at 6.8232 per dollar. In a Reuters poll conducted last week, 25 out of 30 respondents predicted a 10 basis point cut in the one-year LPR. All those polled also predicted a cut in the five-year tenor, including 90% of those predicting a cut of more than 10 bps. read more
TESTING TIME FOR PBOC
China’s economy, the world’s second largest, narrowly avoided contracting in the second quarter as widespread lockdowns and a property crisis hit consumer and business confidence hard. Beijing’s strict “zero-Covid” strategy remains a burden on consumption, and in recent weeks cases have rebounded. Adding to the gloom, slowing global growth and persistent supply chain bottlenecks are undermining the chances of a strong recovery in China. A series of data released last week showed the economy unexpectedly slowed in July and prompted some global investment banks, including Goldman Sachs and Nomura, to revise down their full-year GDP growth forecasts for China. The year. Goldman Sachs cut its full-year 2022 GDP growth forecast to 3.0% from 3.3% previously, well below Beijing’s target of around 5.5%. In a tacit acknowledgment of the challenge of meeting the GDP target, the government failed to mention it at a recent high-profile policy meeting. The deeper cut in the benchmark mortgage rate underscores policymakers’ efforts to stabilize the property sector after a series of bankruptcies among developers and a slump in home sales hit consumer demand. Sources last week told Reuters that China would underwrite new onshore bond issues from a select few private developers to support the sector, which accounts for a quarter of national GDP. read more The LPR cut was necessary, “but the size of the cut was not enough to stimulate funding demand,” said ANZ senior China strategist Xing Zhaopeng, who expects the one-year LPR could be cut further . Goldman Sachs economists also predicted more easing, but noted that policymakers face a testing period. The economist said the PBOC may not be in a “rush to achieve more rate cuts” due to “rising food prices and possible spillover effects from developed market monetary policy tightening.” Sign up now for FREE unlimited access to Reuters.com Register Reporting by Winni Zhou and Brenda Goh. Edited by Shri Navaratnam Our Standards: The Thomson Reuters Trust Principles.
