Macro January 14, 2020 / 08:01 am UTC

China Preview: Due January 20 - January Loan Prime Rates

By Siew Huay Liang

China is scheduled to release its monthly one-year loan prime rate (LPR) and five-year LPR for January on the 20th. We expect to see a cut to January's one-year LPR to 4.10%, down from 4.15% in December. The five-year LPR, which is mainly used in longer-term credit including mortgage loans, will likely be kept unchanged at 4.80%.

The slightly lower one-year LPR may help reduce borrowing costs for businesses, as the stabilization of headline consumer inflation in December provided the government room to step up economic support efforts. We do not expect any massive rate cuts or large-scale monetary easing, as authorities remain committed to controlling financial risks.

In 2020, we see room for 10-20 bps of rate reductions in the one-year LPR and 5-15 bps of cuts in the five-year LPR. The People's Bank of China will likely continue to do some limited liquidity injection through open market operations and lower the reserve requirement ratio another three times in 2020-21 following the one announced on January 1. The continuation of targeted monetary easing, together with support from fiscal policy, will likely help prevent the Chinese economy from experiencing a deeper downturn in the year ahead.

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I, Siew Huay Liang, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.