China cut its new one-year benchmark lending rate for the second month in a row ...
SHANGHAI - China cut its new one-year benchmark lending rate for the second month in a row on Friday, a step by the central bank to try to wrestle down borrowing costs and support the economy as the Sino-U.S. trade war drags on.
Still, analysts say Beijing’s restraint is being put to the test, as worsening economic data in August has raised fears that third-quarter growth could slip below 6%, breaching the lower end of the government’s 2019 target. Total reductions in the rate so far, at 11 bps, are less than half of the Fed’s quarter-point rate cut on Thursday, which some analysts say reflects policymakers’ concerns that lower rates could lead to property bubbles and add to financial risks.
“However, with economic activity likely to come under further pressure in the coming quarters and monetary easing so far failing to generate much of a pick-up in credit growth, we think the PBOC will need to start engineering larger declines before long.” The new reference rate is set by 18 banks, and is loosely pegged to the rate on the central bank’s medium-term lending facility , now at 3.3%.“The LPR is based on banks’ quotations. If there is no government intervention, it’s hard to believe banks are willing to lower their quotations, because corporate demand for loans is not weak at all,” said Luo Yunfeng, an analyst at Merchants Securities in Beijing, noting that lower rates also mean smaller profit margins.
Wen Bin, an economist at Minsheng Bank in Beijing, also said China needs to cut interest rates further, and by the same margin as the Fed.
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