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Financial News: China Central Bank Lowers Medium Term Lending Rate

China Central Bank Lowers Medium Term Lending Rate

11/05/2019 - 01:55:00 (RTTNews)

(RTTNews) - China's central bank lowered its medium term lending rate for the first time since 2016 as the economy grew at the slowest pace in nearly three decades.

The People's Bank of China on Tuesday reduced the rate on its one year medium-term lending facility by 5 basis points to 3.25 percent from 3.3 percent.

As this should put downward pressure on the loan prime rate, Iris Pang, an ING economist said she expects 5 basis points reduction in LPR for 1-year loans to 4.15 percent from 4.20 percent on November 20.

The loan prime rate is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. This new lending rate replaced PBoC's traditional benchmark lending rate in August.

As liquidity has tightened, there is also pressure on the PboC to cut the reserve rate requirement in November or December, Pang added. However, PboC will adopt a wait-and-see approach.

Julian Evans-Pritchard, an economist at Capital Economics, said with economic activity likely to come under further pressure in the months ahead, more easing will be needed to prevent growth from slowing too sharply.

The central bank also lent CNY 400 billion via one-year MLF on Tuesday. A batch of MLF worth about CNY 403 billion is due to mature on Tuesday.

Elsewhere, data released earlier in the day showed that China's private sector expanded at the fastest pace in six months in October driven by manufacturing activity. The IHS Markit/Caixin composite output index rose to 52.0 in October from 51.9 in September.

Meanwhile, the services Purchasing Managers' Index fell to 51.1 from 51.3 in September. This marked the slowest increase in services activity for eight months.

Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group said, "The foundation for economic growth to stabilize still needs to be consolidated."

The economy grew only 6 percent in the third quarter, the weakest since 1992. The International Monetary Fund forecast China's growth to slow to 6.1 percent this year and to 5.8 percent next year.

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