China Expected to Keep Benchmark Lending Rates Unchanged Amid Encouraging Economic Data and Yuan Weakness
China Expected to Keep Benchmark Lending Rates Unchanged as Economy Shows Signs of Recovery
In a survey conducted by Reuters, it has been revealed that China is likely to maintain its benchmark lending rates unchanged on Monday. This decision comes as the country’s first-quarter economic data shows positive signs, reducing the immediate need for further monetary stimulus to support the fragile recovery.
The loan prime rate (LPR), which is typically charged to banks’ top clients, is calculated monthly based on proposed rates submitted by 20 designated commercial banks to the People’s Bank of China (PBOC). All 30 market watchers surveyed this week expect both the one-year and five-year LPRs to remain unchanged.
The one-year LPR currently stands at 3.45%, while the five-year LPR, used as a reference rate for mortgages, is at 3.95% following a 25-basis-point reduction in February to bolster the housing market.
The decision to keep rates steady comes after China’s economy exceeded expectations in the first quarter, providing some relief to officials grappling with challenges in the property sector and rising local government debt.
Wang Tao, chief China economist at UBS, noted that the stronger-than-expected Q1 growth may lead authorities to hold off on additional macro policies. While she no longer anticipates a reduction in the medium-term policy rate, a cut in the LPR remains a possibility.
The yuan’s depreciation against the U.S. dollar this year, coupled with concerns about the exchange rate, has also influenced the decision-making process. Alvin Tan, head of Asia FX strategy at RBC Capital Markets, suggested that the PBOC’s focus on the USD/CNY exchange rate may be a factor in refraining from further interest rate cuts.
Overall, the consensus among experts is that China’s economy is showing signs of resilience, reducing the immediate need for additional stimulus measures. The decision to keep lending rates unchanged reflects a cautious approach by Chinese authorities as they navigate the challenges of economic recovery.
(Reporting by Shanghai Newsroom; Editing by Shri Navaratnam)
