China's borrowing costs are about to get cheaper


It is part of China’s push to connect its interest-rates system to conditions in financial markets
Chief Investment Office20 Aug 2019
    Photo credit: AFP Photo


    CHINA & HONG KONG

    Loans will get a little cheaper for Chinese companies after officials set their new interest rate for the first time on Tuesday (20 August).

    China will probably set its revamped one-year reference rate for bank loans at 4.24%, according to the median estimate in a Bloomberg survey. That compares with the previous loan prime rate (LPR) of 4.31% and the one-year benchmark lending rate of 4.35%. The LPR, which will underpin the price of new loans to businesses, will be announced at 9:30am US time.

    The new LPR is part of a China’s push to connect its interest-rates system to conditions in financial markets. The aim is to help lower the country’s sticky borrowing costs for households and companies, boost lending activity, and support a slowing economy. From Tuesday, new loans must be priced “mainly” with reference to the new LPR, which is linked to the price the People’s Bank of China (PBOC) charges lenders for cash over a year.

    Some expect the central bank will do more this year to lower borrowing costs. Investment analysts predict a cut in the rates charged on medium-term loan facilities, or a targeted reduction in the reserve requirement ratio. Some CNY590b (USD84b) of loans will mature by the end of September, Bloomberg-compiled data show.

    The PBOC said in a statement over the weekend that the 18 banks helping set the new rate should submit quotations in multiples of 5 bps. The National Interbank Funding Centre will cut the highest and the lowest and use the mean of the remaining 16.  – Bloomberg News.

    Hong Kong’s Hang Seng Index rose 2.17% to 26,291.84 on Monday (19 August) and the Shanghai Composite Index gained 2.10% to 2,883.10.

     

    REST OF ASIA

    Communications restrictions continued across Kashmir two weeks after India scrapped the region’s autonomy, while the fate of detained political leaders – including former chief ministers – remains uncertain.

    India yesterday said all government offices along with around 190 schools would be reopened from Monday (19 August), however curbs in some parts of the capital Srinagar were reimposed after protesters clashed with police, a news source reported.

    Prime Minister Narendra Modi’s government has remained silent on the detention of scores of political leaders. The Indian Express listed 27 prominent leaders including three former heads of local government, members of the former legislative council, and a mayor who have been detained without legal recourse.

    The forced removal of the state’s most senior politicians would make it difficult for the federal government to restore normalcy in a region that has been locked down for so long, said an associate.

    Nearly 4,000 people have been arrested and held under the Public Safety Act, a controversial law that allows authorities to imprison someone for up to two years without charge or trial.

    Eight people were injured in protests across six places in the valley. Although there were reports that landlines had been restored in some parts of Srinagar, government numbers remained unreachable after repeated attempts Monday.

    Modi’s surprise move to scrap seven decades of autonomy in India’s only Muslim-majority state has raised tensions with neighbour and nuclear rival Pakistan, which also lays claim to the Himalayan border territory. The United Nations Security Council held a rare closed-door meeting on Friday, called after China backed Pakistan’s demands for a high-level discussion on India’s actions. It failed to produce concrete action. – Bloomberg News.

    Australia’s S&P/ASX 200 Index climbed 0.21% to 6,480.90 early-Tuesday (20 August) morning. The index rose 0.97% to 6,467.44 in the previous session.

    South Korea’s Kospi Index inched 0.15% higher to 1,942.87 on Tuesday morning, extending the previous session’s gain of 0.66% to 1,939.90.

    The Taiwan Stock Exchange Weighted Index added 0.65% to 10,488.75.

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