China’s 5-Year Loan Prime Rate Expected to Fall Following Decline in July Lending


Chinese economists forecast a decline in China’s benchmark medium-term lending rate, after a lacklustre month for lending and credit extension in the month of July.

Data from the People’s Bank of China (PBOC) indicates that new renminbi lending totalled 679 billion yuan for July, 404.2 billion yuan less than the print for the same period last year. Total social financing was 756.1 billion yuan for July, representing a decline of 319.1 billion yuan compared to the same month of 2021. Both figures fell short of consensus expectations amongst Chinese economists.

Several Chinese economists forecast efforts to drive the 5-year loan prime rate (LPR) lower, in a bid to boost lending, particularly to the real estate sector.

Pang Ming (庞溟), Chief Greater China Economist with Jones Lang LaSalle, said that while there was little likelihood of across-the-board cuts to interest rates and reserve requirements, the LPR, which has multiple tenors, could still see an “asymmetric” reduction.

“Because at present housing loan rates are higher than rates for normal loans, and the scope of 5-year LPR declines is still small compared to the 1-year LPR decline, we forecast that if there are ongoing downward adjustments to the 5-year LPR, real estate loan rates can be expected to shift.”

Zhang Yu (张瑜), chief economist with Huachuang Securities Research Institute (华创证券研究所), also forecasts adjustments to the LPR.

“Given that at present the interest rates for real estate loans in many places has already been adjusted to their minimum value in theory, there is still the possibility of adjustments to the 5-year LPR,” Zhang said.