China’s LPR cut smaller than MLF rate cut, may help hedge against risks of banks’ narrowing NIM – CICC
MACRO POLICY & REGULATION VIEWS & ANALYSIS
China’s LPR cut smaller than MLF rate cut, may help hedge against risks of banks’ narrowing NIM – CICC
MACRO POLICY & REGULATION VIEWS & ANALYSIS

China’s LPR cut smaller than MLF rate cut, may help hedge against risks of banks’ narrowing NIM – CICC

 

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China’s one-year Loan Prime Rate (LPR) was cut by 10 basis points, while the five-year LPR was maintained steady, with the cut smaller than market expected and the move to keep the 5-year rate unchanged disappointing to the market, said CICC in a note. 

Earlier, the PBOC on August 15 cut the interest rate on one-year medium-term lending facility (MLF) by 15 basis points, the second MLF rate cut this year.

It’s the first time since the LPR reform in 2019 that both the one-year and five-year LPR cuts were smaller than the MLF cut and the first time since May 2022 that the five-year LPR cut was smaller than that of the one-year LPR.

The new loan rates which are more affected by LPR have hit historical lows and the rates on some loans to state-owned enterprises may have become too low due to excessive competition, it said. What needs to be adjusted is the rate on existing home mortgage loans and other existing loans, which are more likely to be adjusted through repricing agreement rather than a LPR cut, it said.

The LPR cut smaller than MLF rate cut may help hedge against the risk of banks’ narrowing interest margins to better support the real economy and banks’ deposit rates are expected to come down, CICC said.