China leaves benchmark lending rates unchanged for eighth straight month

[SHANGHAI] China left benchmark loan prime rates (LPRs) unchanged on Tuesday (Jan 20) for the eighth consecutive month in January, matching market expectations.

Leaving the rates steady suggests policymakers are in no hurry to deliver broad-based monetary easing after rolling out sector-targeted rate cuts last week. Some analysts expect any cuts to benchmark rates to come in the first or second quarter.

The one-year LPR was kept at 3 per cent, while the five-year LPR was unchanged at 3.5 per cent.

In a Reuters survey of 22 market participants conducted on Monday, all participants predicted no change to either of the two rates.

The People’s Bank of China (PBOC) lowered interest rates on its structural monetary policy tools by 25 basis points (bps) on Monday, a move that tends to have a limited impact on growth compared with cuts to benchmark policy rates.

The bank signalled last week that it has room this year for further reductions in banks’ cash reserve requirements and for broader rate cuts. 

China‘s economy grew 5 per cent last year, meeting the government’s target by seizing a record share of global demand for goods to offset weak domestic consumption, a strategy that blunted the impact of US tariffs but is increasingly hard to sustain.

Bank of America Securities said the PBOC’s recent sector-specific rate cuts reduces the likelihood of a near-term broad-based policy rate cut. “We continue to expect more comprehensive monetary and fiscal easing in late first quarter to early second quarter.”

Nomura said it expects Beijing to focus on using fiscal policy to bolster demand in the short-term, and it maintains its forecast for a 10 bps rate cut and one 50 bps reserve requirement ratio cut in Q2.

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“We expect Beijing may also introduce some measures, such as subsidies on new mortgage loans, though markets still need to be patient for a comprehensive package to rescue the property sector.” REUTERS