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Analysts at Nomura note that the People’s Bank of China’s (PBoC) monetary policy report for Q2 2018 shows the weighted average lending rate was 5.97% p.a. in Q2, only 0.01 percentage points (pp) higher than in Q1.

Key Quotes

“Financing costs for general loans and mortgage loans both rose in Q2, slightly more than offsetting a moderation in bill financing costs.”

“The already high weighted average lending rate is a result of Beijing’s deleveraging drive, in our view, and we believe it may remain a drag on investment and growth in the quarters ahead.”

“Although Beijing is unwinding its early deleveraging measures and rolling out more policy easing/stimulus, the effect on the real economy will take time to show.”

“Given headwinds to growth both internally and externally, we maintain our call for a visible growth slowdown to 6.4% y-o-y in Q3 from 6.7% in Q2.”