Despite lower funding costs, Chinese banks refrained from passing on interest rate reductions to borrowers in January.
The Loan Prime Rate (LPR) for 1-year lending was left unchanged in January at 4.15 per cent, below the 4.1 per cent level forecast by economists. The LPR for 5-year lending also remained steady at 4.8 percent.
The LPR, released by the People’s Bank of China (PBoC), is determined by individual quotations provided by Chinese lender every month. As the benchmark rate all bank loans are priced off, it is influential on determining borrowing costs across the broader economy.
The decision from lenders, collectively, to not pass on lower rates to customers surprised Julian Evans-Pritchard, Capital Economics’ senior China economist. However, he doesn’t expect it will remain that way for long.
With a slowdown in property construction only just getting underway, we are sceptical that the latest uptick in economic activity marks the start of a sustained turnaround,” he said. “Instead, with growth likely to come under renewed pressure, we think the PBoC will resume its rate cuts before long…[and] expect the LPR to decline a further 50 basis points by year-end.”