China’s short and medium-term benchmark interest rates have both posted declines for the month of August.
The loan prime rates (LPR’s) announced by China’s National Interbank Funding Center (全国银行间同业拆借中心) on 22 August were 3.65% for the 1-year LPR and 4.3% for the 5-year LPR.
The 1-year LPR fell 5 basis points compared to the print of 3.7% in July, while the 5-year LPR marks a reduction of 15 basis points compared to the print of 4.45% last month.
August is the third month this year that the 5-year LPR has fallen, after a 5 basis point decline in January and a 15 basis point fall in May.
Domestic analysts previously forecast a decline in the medium-term LPR after lending and total credit extension saw sizeable contractions 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.
Wen Bin (温彬), chief analyst with China Minsheng Bank, said that reductions to the LPR in August would help to revive credit demand.
“The latest round of LPR declines will have a positive role in reducing financing costs for the real economy, reviving the confidence of market actors, and spurring a recovery in effective demand for loans.”
Following the Chinese central bank’s decision to reduce the floor on first home loan rates by 20 basis points, the latest LPR reduction is expected to bring them down further to 4.1%.