China set to cut lending benchmarks next week as economy worsen

China is set to cut credit standards next week as the economy worsens

SHANGHAI/SINGAPORE (Reuters) - China is expected to cut lending standards in a monthly fix on Monday, with many analysts predicting a big cut in the benchmark mortgage rate to revive credit demand and support the ailing property sector.

The base interest rate  normally charged to banks' best clients is calculated each month after 18 designated commercial banks submit proposed rates to the central bank, the People's Bank of China .In a survey of 35 market watchers, all participants predicted a cut in both the one-year LPR and the five-year tenor after the central bank unexpectedly cut its medium-term rate this week.

The Medium Term Lending Facility rate serves as a guide for the , and markets generally use the  rate as a precursor to any changes in credit benchmarks. monthly fix is ​​due next Monday.Among the 35 respondents to the survey, 19, or 54%, expected a 15 basis point reduction in the annual LPR – on which most new and outstanding loans are based and currently stands at 3.55%. The remaining 16 traders and analysts forecast a slight cut of 10 basis points.

Following an earlier-than-expected policy rate cut, we plan to cut the 1-year LPR by 10 bps and 5-year LPR by 20 bps to further support the real estate sector,” Citi analysts said in a note. They also expect the central bank to cut the minimum reserve ratio (RRR) of banks by 25 basis points soon.

Market expectations for further monetary policy easing follow economic data that showed falling credit lending and rising deflationary pressures. Meanwhile, the risks of default by some developers have undermined confidence in the financial market.

In response to the deepening crisis in the housing market, the central bank pledged to adjust and optimize housing policy, according to the second quarter monetary policy implementation report released this week.

"According to the PBOC's previous modus operandi, we should expect a symmetric, oversized 10-15bp cut over the one-year and five-year horizons next week," said Carlos Casanova, chief economist for Asia at UBP.

"Looking ahead, we expect the PBOC to also continue with a further 50-75bp of RRR cuts and balance sheet expansion to mitigate risks in key sectors such as local government fund debt (LGFV) and regional housing markets."

As part of a strategic move to counter economic challenges, China is preparing to cut its lending criteria in the coming week. This decision comes at a time when the national economy is facing a number of challenges that require timely intervention. With global markets watching China's every move, the looming interest rate cut could potentially stimulate economic growth and boost investor confidence.

China's economic landscape

China's economy, long hailed as a global powerhouse, has recently faced a number of obstacles. From trade tensions and slowing demand to structural shifts, the country's economic landscape has transformed, requiring swift and thoughtful action. In response to these challenges, Chinese policymakers are poised to lower credit standards, a strategic maneuver with the potential to inject vitality into the economy.

Lowering Interest Rates: A Strategic Approach

The impending downgrade of credit benchmarks signals China's proactive stance in dealing with its current economic predicament. By reducing borrowing costs, the move aims to encourage businesses to invest, consumers to spend and overall economic activity to accelerate. This strategic approach is consistent with China's commitment to maintaining a stable growth trajectory despite adversity.China's credit benchmarks, economic issues, credit rate cuts, economic growth, borrowing costs, stable growth trajectories.

Global implications

China's economic decisions have far-reaching implications for the global financial ecosystem. As China is the world's second largest economy, any changes in China's economic policies will be reflected in international markets. A cut in interest rates could potentially trigger increased capital flows, affect commodity prices and affect the economies of trading partners. Investors, businesses and governments around the world are closely watching how this move unfolds and its potential ramifications

Revival of investor confidence

Market sentiment plays a critical role in determining economic outcomes. The impending interest rate cut has the potential to boost investor confidence in China's economic prospects. As credit costs become more favorable, businesses may be more inclined to expand, entrepreneurs may seize new opportunities, and foreign investors may find China a more attractive investment destination. investor confidence, interest rate cuts, economic outlook, borrowing costs, foreign investors, investment destination.

Challenges and Considerations

While lowering interest rates is promising, it is important to note the challenges and considerations associated with this strategy. Finding the right balance between stimulating economic activity and managing financial risks remains a priority. Chinese policymakers will need to navigate these waters carefully to ensure that the benefits of reduced lending criteria outweigh the potential downsides.

 financial risks, economic activity, reduced credit standards, political considerations, risk management.

China's decision to cut credit standards next week underscores its commitment to proactively address prevailing economic problems. By strategically reducing borrowing costs, the nation seeks to boost economic growth, restore investor confidence and maintain stability in the global financial environment. As the world watches this key move, its outcomes could shape not only China's economic trajectory, but also the broader international economic story. Chinese economy, borrowing costs, economic growth, investor confidence, global financial environment.

In a world where economic interdependence is stronger than ever, China's measures must have a profound impact. As the country charts its way through uncertain waters, the upcoming interest rate cut is evidence of China's determination to steer its economy toward stability and sustainable growth.

In response to challenging economic conditions, China is preparing to introduce a major policy step next week - a reduction in credit criteria. As the global economy grapples with uncertainties, this strategic decision reflects China's commitment to stabilizing its financial environment. This article delves into the expected cuts in credit benchmarks, their implications and the broader economic context.

China's economic landscape:

China's economy has recently witnessed a series of ups and downs with increasing challenges posed by both internal and external factors. Continued trade tensions, exacerbated by the effects of the COVID-19 pandemic, have cast a shadow over economic growth. In light of these challenges, China is taking proactive measures to protect its economy from further shocks.

Credit standards and their role:

Credit standards, often referred to as interest rates, play a key role in determining the cost of borrowing for both individuals and businesses. They significantly influence investment decisions, consumer spending and overall economic growth. By adjusting these benchmarks, Chinese policymakers are trying to create an environment conducive to increased credit and thereby stimulate economic activity.

Expected reduction in credit benchmark:

Amid fears of an economic slowdown, the People's Bank of China is poised to cut lending standards in the coming week. Reports suggest the move is aimed at making loans more affordable, encouraging businesses to invest and consumers to spend. This adjustment is expected to be a strategic move to balance economic challenges and boost growth.

Implications for businesses and consumers:

The impending downgrade of credit benchmarks could have far-reaching consequences. For businesses, reduced borrowing costs could translate into increased capital investment and opportunities for expansion. Lower interest rates often lead to a reduction in the burden of repaying loans, freeing up resources that can be redirected to innovation and growth initiatives. Similarly, it may make it more attractive for consumers to borrow for big-ticket purchases, stimulating demand across industries.

The wider economic context:

China's decision to lower credit standards is in line with its broader economic agenda. The government's commitment to maintaining stable growth and achieving economic resilience is evident from these policy steps. By influencing interest rates, China tries to control inflation, stimulate domestic consumption and strengthen its position in the global economic environment.

As China braces against the headwinds of a challenging economic environment, the upcoming cuts in the credit benchmark carry significant weight. This strategic maneuver aims to make loans more accessible and affordable, potentially rejuvenating business investment and consumer spending. While the global economy is going through uncertainties, China's proactive measures demonstrate its determination to promote economic stability and growth. This article is for informational purposes only and does not constitute financial advice. Readers are encouraged to consult financial professionals before making any financial decisions.