As the NY trading day winds down, keep in mind that the first event on the economic calendar next week is the Loan Prime Rate meeting at the People’s Bank of China.
Governor Pan Gongsheng left the MLF rate unchanged last week so expectations are for no change but given the rough ride in Chinese markets so far this year, I wouldn’t rule anything out.
The LPR rate was last changed in August: PBOC Loan Prime Rate cut: 1-year 3.45% (prior 3.55%) & 5-year 4.2% (prior 4.20%).
PBOC’s Loan Prime Rate:
- It is an interest rate benchmark used in China, set by the People’s Bank of China each month. While set on the 20th of the month or the first business day afterwards. The new LPR takes effect on the first day of the following month.
- The LPR serves as a reference rate for banks when they determine the interest rates for (primarily new) loans issued to their customers.
- Its calculated based on the interest rates that a panel of 18 selected commercial banks in China submit daily to the PBOC.
- The panel consists of both domestic and foreign banks, with different weights assigned to each bank’s contributions based on their size and importance in the Chinese financial system.
- The LPR is based on the average rates submitted by these panel banks, with the highest and lowest rates excluded to reduce volatility and manipulation. The remaining rates are then ranked, and the median rate becomes the LPR.
The LPR was last left unchanged on December 20.
There is also talk about an RRR cut as the lever to stimulate growth in Q1. At this point, I think it will take some forceful moves to stimulate growth.
After China, the focus on Tuesday will move to the Bank of Japan rate decision. Again, no change is expected but the BOJ could offer signals on its willingness to begin normalizing rates in the springtime.