China holds benchmark lending rates steady as expected
The renminbi has managed to eke out modest gains against the US dollar so far this year
[SHANGHAI] China held benchmark lending rates steady for the fifth straight month in March on Thursday (Mar 20), matching market expectations.
Early signs of the economic recovery gaining some momentum and persistently narrowing profit margins for lenders have reduced the urgency for more easing measures, despite the central bank’s shift to an “appropriately loose” monetary policy stance this year.
The one-year loan prime rate (LPR) was kept at 3.1 per cent, while the five-year LPR was unchanged at 3.6 per cent.
In a Reuters poll of 33 market participants conducted this week, 29, or 88 per cent of them expected no changes to either of the two rates.
A string of recent economic data, including manufacturing activity, industrial output and retail sales, provided encouraging signs for the economy’s continued recovery. Beijing also rolled out more stimulus measures this week to boost domestic consumption.
The People’s Bank of China (PBOC) said last week that it would cut interest rates and banks’ reserve requirement ratio (RRR) at the appropriate time and keep liquidity ample.
A fragile renminbi, pressured by wide yield differentials with the US, is considered by markets as a key constraint limiting Beijing’s monetary easing efforts.
The renminbi, however, has managed to eke out modest gains against the US dollar so far this year, underpinned by a broadly weakening greenback, as US President Donald Trump’s ramped-up tariffs against trading partners fan fears of a sharp economic downturn.
Analysts at Commerzbank said: “More monetary easing, such as interest rates or RRR cuts, could be expected this year. But the PBOC is waiting for the right window to do so, likely when there is less depreciation pressure on the (renminbi).”
Wang Qing, chief macro analyst at Golden Credit Rating, said the main reason for steady LPRs is that consumption and investments have picked up pace.
“The impact of the trade war is not yet obvious, and the necessity and urgency of lowering interest rates are not high,” Wang said. REUTERS
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