China's central bank is likely to cut lending rates further in a bid to revive the economy but reluctance among private firms and households to borrow means continued policy easing could end up hurting banks already battling margin pressures, analysts said.
Small cuts in rates will not have a big impact on demand for loans as families and businesses repair balance sheets damaged by COVID and repay debts, economists said, forcing Beijing to rely on fiscal stimulus and other policy tools to spur demand. for the first time in 10 months on Tuesday, with a smaller-than-expected 10-basis point reduction in the five-year LPR, which influences the pricing of mortgages.
"It is possible to see further LPR cuts in the second half of this year ... That will again bring cost pressure on banks," said Wang Yifeng, a banking sector analyst at Everbright Securities Co. But l owering of both lending and deposit rates will not help banks if demand for credit doesn't pick up. "A small rate cut is a useful painkiller for symptoms but cannot alleviate the real problem," said Gary Ng, Asia Pacific senior economist of Natixis.
"And now that businesses are repairing their balance sheets after the COVID restrictions were ended , it's unrealistic for them to borrow money to build up factories and expand capacity."China remains on track to hit its modest 2023 growth target of around 5%, but a deeper slowdown in the coming months could stoke more job losses and fuel deflationary risks, further undermining private-sector confidence, economists said.discussed policy measures to support the economy.
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