SHANGHAI/SINGAPORE — China left benchmark lending rates unchanged at a monthly fixing on Tuesday, in line with market expectations.
The steady monthly LPR fixings met market expectations, as shrinking interest margins at lenders hampered continued easing efforts after China lowered a string of key interest rates a month earlier.
The one-year loan prime rate (LPR) was kept at 3.35 percent, while the five-year LPR was unchanged at 3.85 percent.
In a Reuters survey of 37 market participants conducted this week, all respondents expected both rates to stay unchanged.
Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.
China surprised markets by cutting major short- and long-term interest rates in July, its first such broad move in almost a year, signaling policymakers’ intent to strengthen economic growth.
The sequence of the rate cuts also showed the People’s Bank of China’s monetary framework had changed, shifting the short-term rate to being the main signal guiding markets, traders and analysts said.
China’s bank lending tumbled more than expected last month, hitting the lowest in nearly 15 years, dragged down by tepid credit demand and seasonal factors, and raising expectations that the central bank may deliver more easing steps.
Economists at Goldman Sachs said: “The expansionary fiscal policy, along with other support, including continued monetary policy easing, is needed to stem further weakening in domestic demand and to ensure real gross domestic product growth stays close to 5 percent year on year in the second half of this year. We believe the growth target is important to the authorities and recent policy communications have indicated so.”
They expect one 25-basis-point reserve requirement ratio cut in the third quarter, followed by another 10-basis-point policy rate cut in the fourth quarter of this year.
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