SHANGHAI/SINGAPORE (Reuters) - China is expected to cut lending standards in a monthly fix on Monday, with many analysts predicting a big cut in the benchmark mortgage rate to revive credit demand and support the ailing property sector.
The base interest rate (LPR) normally charged to banks' best clients is calculated each month after 18 designated commercial banks submit proposed rates to the central bank, the People's Bank of China (PBOC).
In a survey of 35 market watchers, all participants predicted a cut in both the one-year LPR and the five-year tenor after the central bank unexpectedly cut its medium-term rate this week.
The Medium Term Lending Facility (MLF) rate serves as a guide for the LPR, and markets generally use the MLF rate as a precursor to any changes in credit benchmarks. LPR monthly fix is due next Monday.
Among the 35 respondents to the survey, 19, or 54%, expected a 15 basis point reduction in the annual LPR – on which most new and outstanding loans are based and currently stands at 3.55%. The remaining 16 traders and analysts forecast a slight cut of 10 basis points.
And 33, or 94% of them, predicted that the five-year rate, which serves as the benchmark mortgage rate, would be cut by at least 15 bp. The five-year LPR is currently 4.20%.
Following an earlier-than-expected policy rate cut, we plan to cut the 1-year LPR by 10 bps and 5-year LPR by 20 bps to further support the real estate sector,” Citi analysts said in a note.
They also expect the central bank to cut the minimum reserve ratio (RRR) of banks by 25 basis points soon.
Market expectations for further monetary policy easing follow economic data that showed falling credit lending and rising deflationary pressures. Meanwhile, the risks of default by some developers have undermined confidence in the financial market.
In response to the deepening crisis in the housing market, the central bank pledged to adjust and optimize housing policy, according to the second quarter monetary policy implementation report released this week.
"According to the PBOC's previous modus operandi, we should expect a symmetric, oversized 10-15bp cut over the one-year and five-year horizons next week," said Carlos Casanova, chief economist for Asia at UBP.
"Looking ahead, we expect the PBOC to also continue with a further 50-75bp of RRR cuts and balance sheet expansion to mitigate risks in key sectors such as local government fund debt (LGFV) and regional housing markets."
In response to escalating economic challenges, China is set to introduce major measures aimed at revitalizing its struggling economy. Reports suggest the country is on the verge of lowering its credit standards, a move that underlines the urgency to stimulate growth. The strategic maneuver comes at a critical time when China is grappling with mounting pressures on multiple fronts. This article delves into the impending credit benchmark downgrade, its implications, and the broader context of China's economic environment.
Key points:
China's economic dilemma: China's economy is facing a confluence of adverse factors, including a slowdown in industrial production, trade tensions and the effects of a global pandemic. As these challenges persist, the Chinese government is taking proactive steps to boost economic activity.
Credit Benchmark Cut: Sources indicate China's central bank is preparing to cut its credit benchmarks. These benchmarks play a key role in determining interest rates and credit availability and affect borrowing costs for businesses and individuals. By lowering these benchmarks, China is trying to boost lending, investment and consumption.
Stimulating growth: The move to cut credit benchmarks reflects China's determination to boost economic growth. By making credit more accessible and affordable, the government hopes to revive key industries, create jobs and boost domestic demand. This strategic decision is in line with broader efforts to maintain economic stability and mitigate the impact of global uncertainties.
Impact on businesses and individuals: The reduction in credit criteria could have far-reaching effects. For businesses, lower borrowing costs could facilitate expansion and innovation, which could be a catalyst for increased production and hiring. Individuals could benefit from reduced interest rates on loans, encouraging spending and investment in real estate and other sectors.
Global Implications: China's economic health is of global importance given its position as a major player in international trade and finance. As China implements measures to address economic challenges, the fallout could spread beyond its borders, affecting trading partners, commodity markets and investor sentiment around the world.
China's decision to cut its credit benchmarks amid a worsening economic scenario underlines its commitment to rejuvenate growth and ensure stability. With this move, China is trying to unleash a wave of economic activity that could resonate at home and internationally. As the world watches closely, the impact of this strategic maneuver will undoubtedly shape the trajectory of the Chinese economy and its interaction with the global financial environment. Stay tuned for updates on this critical development and its far-reaching implications.
Against the background of a challenging economic environment, China is ready to take strategic measures to mitigate the impact on its financial environment. Reports suggest that China is set to lower its credit standards in an attempt to cushion its economy from further decline. The move has significant implications for industries across the spectrum. In this article, we will delve into the rationale behind China's decision and explore the potential ramifications it may have.
Understanding the economic context:
Amid ongoing global economic uncertainty, China's economy has faced a number of headwinds, from trade tensions to the ongoing effects of the pandemic. The decision to cut credit benchmarks is seen as a proactive step to address the urgent need for liquidity and stimulate economic growth.
Expected impacts on various sectors:
Financial and banking sector:
The expected reduction in credit benchmarks is likely to reduce borrowing costs for businesses and consumers. This in turn could stimulate increased lending activities and provide a boost to liquidity in the financial system. Banking institutions may witness an increase in demand for loans, leading to a potential expansion of their loan portfolios.
Real estate market:
In the real estate sector, which is highly sensitive to changes in interest rates, there may be a revival of activity. Lower credit standards could encourage property purchases and investment, ultimately reviving the real estate market and supporting related industries.
Manufacturing and export industries:
A more accessible credit environment could encourage manufacturing and export-oriented sectors. With reduced borrowing costs, it may be easier for companies to invest in manufacturing and innovation, potentially boosting China's competitiveness in global trade.
Consumer spending:
Lower interest rates on loans could encourage consumers to take out loans for various purposes, such as purchasing durable goods or investing in education. This could lead to an increase in consumer spending, which would contribute to economic recovery.
Investor Mood:
The announcement of such a move could positively affect investor sentiment and signal the government's determination to stabilize the economy. Improved confidence can lead to higher investment activities in both domestic and international markets.
China's decision to cut its credit benchmarks amid worsening economic conditions shows a calculated effort to face the challenges that have emerged in recent times. By stimulating loans and supporting economic activities, the country is trying to steer its economy towards recovery and growth. While the effects of this decision will play out over time, it underscores China's proactive approach in adapting to changing economic dynamics. As businesses and industries prepare for the coming changes, only time will reveal the full extent of the effects of this strategic maneuver.
In response to escalating economic challenges, China is poised to introduce a significant cut in credit benchmarks that will take effect next week. This strategic move by the Chinese authorities reflects their proactive stance to face deteriorating economic conditions. As global markets closely monitor these upcoming developments, let's dive into the details of this major decision and its potential impact on China's financial situation.
Amid growing fears of an economic downturn, China is preparing for a major move to address growing instability. Reports indicate that the country's lawmakers are preparing to enact a substantial reduction in lending criteria, with an implementation timetable set for the coming week. The decision comes in light of ongoing economic challenges facing China, including fluctuations in key sectors, declining growth rates and complex trade dynamics.
By strategically lowering credit benchmarks, China wants to strengthen its financial sector and stimulate economic growth. The move is expected to facilitate increased lending activity, thereby injecting much-needed liquidity into various segments of the economy. As businesses and consumers grapple with uncertainty, this upcoming policy change could serve as a timely impetus to revive investment and consumption patterns.
Market analysts and experts are closely monitoring these developments and considering their potential implications for domestic and international markets. A decisive reduction in credit criteria could affect borrowing costs, affect business profitability and affect consumer spending behavior. Furthermore, this policy adjustment may play a key role in shaping China's economic trajectory in the coming months, potentially steering it away from the current downturn.
China's impending decision to cut credit standards marks a strategic maneuver aimed at mitigating the challenges posed by a deteriorating economy. With the implementation date set for next week, the global financial landscape is on the cusp of a significant shift. As China takes proactive measures to stabilize its economy, the outcome of this policy adjustment could reverberate across industries and markets around the world. Stay tuned for more updates as China navigates these critical economic crossroads."
0 Comments