Policymakers expected to target mortgage-linked loan prime rate to support sentiment
The majority of economists polled by Bloomberg expect the one-year LPR, which underpins mortgage lending, to be cut by 15 basis points, the largest margin since January 2022. A similar cut to the five-year rate would be the biggest in a year. The LPR rates are currently 3.55 and 4.2 per cent, respectively.
Beijing has stopped short of unleashing major stimulus despite months of disappointing economic data, with consumer prices slipping into deflationary territory in July and growth of just 0.8 per cent in the second quarter against the previous three months. “We believe the risk of systemic concerns emerging in China remains low, though spread[s] will likely remain volatile until the macro volatility subsides,” Goldman Sachs analysts wrote on Saturday, adding that this “may require a more concerted easing effort by China policymakers”.
The LPR is partly determined by China’s biggest banks, which are set to release financial reports for the second quarter this month. The one-year LPR, which was cut in June by 10 basis points, is closely watched because of its relationship to mortgage borrowing costs.