The People’s Bank of China published its monetary policy operation report for Q1 2018, which shows the weighted average lending rate rose to 5.96% p.a. in Q1 from 5.74% in Q4 2017, notes the research team at Nomura.
Key Quotes
“By category, the financing costs for general loans, bill financing and mortgage loans all rose.”
“Among general loans, the share of loans priced above the benchmark lending rate increased by 9.9 percentage points (pp) to 74.4% in Q1; this is the highest reading since the PBoC started releasing these data in 2004 and is further evidence of rising financing costs for the corporate sector. Not surprisingly, the share of loans priced below the benchmark rate fell by 4.7pp to 9.6%.”
“We view the rise in weighted average lending rates as a consequence of the ongoing financial deleveraging, which may erode the profit margins of firms and weigh on their investment growth. One silver lining is that higher financing costs may push firms to cut debt and help curb associated financial risk. We maintain our call for a prudent and neutral monetary policy stance and a gradual growth slowdown through the rest of this year.”
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