Chinese banks may cut their benchmark lending rates for the second time this year as COVID-19 lockdowns take a havoc on the economy.
The one-year loan prime rate — the de facto benchmark lending rate — will likely be reduced by 5-10 basis points from 3.7% on Friday, according to 11 of 19 economists surveyed by Bloomberg. Seven of them see a cut to 3.65%, four predict 3.6% and the rest expect no change.
The loan is quoted by 18 different banks and is published by the People’s Bank of China monthly. It typically moves in tandem with the PBOC’s rate on its one-year policy loans, which was kept unchanged on May 16. However, with borrowing costs for banks coming down, they may have scope to lower loan rates.
“We see some chance of an LPR cut of 5 to 10 basis points this week because banks’ funding costs have moved lower,” said Frances Cheung, rates strategist at Oversea-Chinese Banking Corp Ltd.
A cut in loan rates would help reduce business costs and give consumers much needed relief. The Covid lockdowns and an ongoing property market slump have curbed borrowing, with loan growth weakening sharply in April to the worst level in almost five years.
