China Lenders Trim Borrowing Costs, Following Central Bank
China Lenders Trim Borrowing Costs, Following Central Bank
(Bloomberg) -- China’s base rate for new corporate bank loans dropped in November, following a series of policy-rate cuts from the central bank aimed at easing liquidity concerns.
The one-year loan prime rate was set at 4.15% versus 4.2% in October, according to a statement from the central bank Wednesday. Some analysts had predicted a cut of at least 5 basis points after the People’s Bank of China lowered two of its market rates this month and added liquidity to the financial system. The five-year tenor was set at 4.80% versus 4.85% in October.
The rate cut comes after China on Monday lowered the cost it charges on short-term open-market operations for the first time since October 2015. The central bank also unexpectedly injected $29 billion of medium-term cash on Nov. 15, and cut the cost of 1-year funds to banks as it sought to soothe market nerves as the economic outlook dims.
The LPR is a revamped market indicator of the price that lenders charge clients for new loans, released on or around the 20th day of every month. While China still has a role in setting the level, it’s made up of submissions from a panel of 18 banks, and is linked to the rate at which the PBOC will lend financial institutions cash for a year.
Economic data from credit expansion to industrial output trailed economists’ forecasts in October. In its latest monetary policy report released last weekend, China’s central bank said it will “increase counter-cyclical adjustment” to ward off downward pressure on the economy, while staying vigilant on the possibility of expectations that inflation may spread.
“The fact that LPR wasn’t lowered last month but this month signals that the PBOC is making the easing effect more obvious -- the central bank does not want to surprise the market any more,” said Zhou Hao, a senior emerging markets economist at Commerzbank AG.
The yield on China’s benchmark 10-year sovereign bonds was little changed as of 9:56 a.m. local time.
To contact Bloomberg News staff for this story: Claire Che in Beijing at yche16@bloomberg.net
To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, David Watkins
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