PBoC pumps in further stimulus – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest decision by the PBoC to lower the 5-year LPR.

Key Takeaways

“The People’s Bank of China (PBoC)’s benchmark 5Y Loan Prime Rate (LPR) was fixed lower by a record 15 bps to 4.45% today (Bloomberg est: 4.55%), signaling stronger support for the real estate market. The rate was last cut by 5 bps in Jan. This could be followed by further measures to ease property market curbs.”

“The 1Y rate was unchanged at 3.70% (Bloomberg est: 3.65%), following decision by the PBoC to keep the 1Y medium-term lending facility (MLF) rate steady at 2.85% on Mon (16 May).”

“New loans have tumbled in Apr as a result of COVID curbs in a number of Chinese cities and persistent weak sentiment in the real estate market. Despite the cut in 5Y LPR, a recovery in credit demand could remain hampered by economic uncertainties in the near-term.”

“Domestic interbank liquidity has remained ample, leaving room for the PBoC to maintain a very measured pace of monetary policy easing. While the government may expect economic activities to bounce back quickly as COVID containment measures are being eased, we think a more aggressive monetary policy support would still be needed to bring full-year growth even close to 5%. Thus, there is room for the 1Y LPR to move lower to 3.55% by end-3Q22. As for the 5Y LPR, it has reached our target for 15 bps cut. Whether the 5Y rate will be further reduced depends on the outlook for the property market.”