China banks keep lending rates unchanged as economy rebounds
CHINA’S commercial lenders kept their benchmark lending rates unchanged on Thursday (Apr 20) after the central bank held back from easing monetary policy this month as the economy rebounds.
The one-year loan prime rate (LPR) was maintained at 3.65 per cent for the eighth straight month, data from the People’s Bank of China (PBOC) showed, in line with economists’ forecasts. The five-year rate, a reference for mortgages, was kept steady at 4.3 per cent, also matching expectations.
China’s economic recovery is strengthening, the property market is recovering and credit has surged, reducing the need for more central bank stimulus. The loan rates are based on the PBOC’s one-year policy loan rate, which was kept unchanged earlier this week.
The central bank also dialled back its cash injection into the financial system this week, a sign policymakers are watching the effects of past easing steps, including a March cut in the amount of cash lenders must hold in reserve.
“There’s not much necessity and urgency to lower the LPRs now since the economy had a good start of the year and its growth beat expectations,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle. “Credit and loan data have shown improvement in both quantity and structure.”
Profit growth at Chinese banks are under pressure as loan rates, including on mortgages, decline and they follow directives from the government to boost lending to small businesses. The squeeze has forced some local banks to lower their deposit rates recently, in line with moves by their larger rivals last year.
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GDP target
Recent signals from the central bank suggest it’s more optimistic about the economy’s outlook. In a statement last week after its quarterly policy meeting, the PBOC dropped a reference to three major growth risks — contracting demand, supply shocks, and weakening expectations — which it had highlighted in previous statements.
Central bank governor Yi Gang also said last week the economy was on track to grow in line with the government’s 2023 GDP target of around 5 per cent.
The messages have dampened speculation the PBOC will add more stimulus, especially with credit remaining fairly strong. State media reported on Thursday that banks are likely to keep expanding loans.
Some analysts, including Bloomberg Economics, argue there’s still a need for more easing in the coming months, to improve sluggish sentiment among households and businesses. BLOOMBERG
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