The one-year loan prime rate (LPR) remained unchanged at 3.35 percent, while the five-year LPR remained unchanged at 3.85 percent | (Photo: Reuters)
China left benchmark interest rates unchanged in its monthly setting on Tuesday, in line with market expectations.
Why is it important?
The steady monthly LPR fixings met market expectations as narrowing lenders’ interest margins hampered continued easing efforts after China cut a number of key interest rates a month earlier.
In numbers
The one-year prime lending rate remained unchanged at 3.35 percent, while the five-year LPR remained unchanged at 3.85 percent.
In a Reuters poll of 37 market participants this week, all respondents expected both rates to remain unchanged.
Context
Most new and outstanding loans in China are based on the one-year LPR rate, while the five-year rate influences mortgage pricing.
China surprised markets by cutting key short- and long-term interest rates in July, its first broad move in nearly a year, signaling authorities’ intent to bolster economic growth.
The sequence of rate cuts also showed that the People’s Bank of China’s monetary framework had changed, with the short-term rate becoming the main signal guiding markets, traders and analysts said.
China’s bank lending fell more than expected last month, hitting its lowest level in nearly 15 years, dragged down by tepid credit demand and seasonal factors and raising expectations that the central bank may take further easing measures.
Key quotes
Goldman Sachs economists: “Expansionary fiscal policy, together with other supportive measures, including continued monetary policy easing, is necessary to stem further weakening in domestic demand and ensure that real GDP growth remains close to 5 percent year-on-year in the second half of this year. We believe that the growth objective is important for the authorities and recent monetary policy communications have indicated this.”
A 25 basis point cut in the reserve requirement ratio (RRR) is expected in the third quarter, followed by another 10 basis point cut in the policy rate in the fourth quarter of this year.
(Only the headline and image of this report may have been reworked by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First published: August 20, 2024 | 09:45 IS
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