News
China keeps benchmark rates stable as People’s Bank of China walks tightrope
SHANGHAI/SINGAPORE (Reuters) – China kept benchmark interest rates unchanged at a fixed monthly value this Thursday, in line with market expectations.
BECAUSE IT’S IMPORTANT
LPR’s monthly fixings underline that Beijing’s monetary easing efforts continued to be constrained by narrowing interest rate margins and a weakening currency, despite a flurry of recent data showing that more support is needed to sustain a recovery unequal economic situation.
BY THE NUMBERS
The one-year lending prime rate (LPR) was maintained at 3.45%, while the five-year LPR remained unchanged at 3.95%.
In a Reuters poll of 30 market participants conducted this week, 21, or 70% of all respondents, expected both rates to remain unchanged.
New home prices in China fell at the fastest pace in more than nine and a half years in May, official data showed on Monday, with the property sector in a depressed state despite government efforts to control oversupply and support indebted promoters.
New bank loans in China rebounded much less than expected in May and some key currency indicators hit historic lows, suggesting the world’s second-largest economy is still struggling to accelerate the pace of recovery.
CONTEXT
Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the price of mortgages.
The five-year LPR was cut by a decent 25 basis points in February to support the property market.
The Financial News, a newspaper backed by the central bank, said in a commentary this week that China still has room to cut interest rates, but its ability to adjust monetary policy faces internal and external constraints.
(Reporting by Winni Zhou and Tom Westbrook; Editing by Kim Coghill and Shri Navaratnam)