Chinese banks disappoint investors with modest reduction to five-year rate

BLOOMBERG

Chinese banks followed the central bank by lowering their benchmark lending rates, although a relatively modest
reduction to the mortgage reference rate disappointed investors.
The one-year and five-year loan prime rates were reduced by 10 basis points each, according to a statement by the People’s Bank of China (PBOC).
While that was in line with the reduction in the PBOC’s policy rates, some economists had predicted a bigger reduction of 15 basis points in the five-year rate, a reference for mortgages, to support the ailing housing market.
Reducing both rates by the same magnitude “shows policymakers wish to avoid sending an overly optimistic signal about the property market under the principle of ‘housing is for living, not speculation,’” said Bruce Pang, chief economist and head of research for Greater China at Jones Lang LaSalle Inc.
Chinese stocks in Hong Kong underperformed the broader regional market.
The Hang Seng China Enterprises Index was down almost 2% at the mid-day trading break, with property stocks among the top losers. The offshore yuan extended its drop following the announcement. The yield on China’s 10-year government bonds dropped two basis points to 2.68%.
The LPRs are based on the interest rates that 18 banks offer their best customers and were last reduced in August. The easing was largely expected as the rates are quoted as a spread over the rate on the central bank’s one-year policy loans, or the medium-term lending facility, which was lowered by 10 basis points.
“The 10 basis-point cut in the five-year LPR was a bit disappointing to China bulls who are looking for even stronger stimulus to support the struggling property market,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank Ltd.