China Holds Benchmark Lending Rates Steady

SHANGHAI/SINGAPORE (Reuters) – China left benchmark lending rates unchanged at a monthly fixing on Tuesday, aligning with market expectations.

WHY IT’S IMPORTANT

The steady monthly LPR fixings met market expectations, as shrinking interest margins at lenders hampered continued easing efforts following a series of key interest rate cuts a month ago.

BY THE NUMBERS

• The one-year loan prime rate (LPR) remains at 3.35%.
• The five-year LPR is unchanged at 3.85%.

In a Reuters survey of 37 market participants conducted this week, all respondents expected both rates to stay unchanged.

CONTEXT

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences mortgage pricing.

China recently surprised markets by cutting major short- and long-term interest rates in July, marking its first broad move in almost a year, indicating policymakers’ intent to boost economic growth. The sequence of these rate cuts also suggested a shift in the PBOC’s monetary framework, with short-term rates becoming the main signals guiding markets.

China’s bank lending fell more than anticipated last month, reaching the lowest level in nearly 15 years, affected by weak credit demand and seasonal factors. This decline raises expectations for further easing measures from the central bank.

KEY QUOTES

Economists at Goldman Sachs noted: “The expansionary fiscal policy, along with support from continued monetary easing, is essential to prevent a further decline in domestic demand and to maintain real GDP growth close to 5% year-on-year in the latter half of this year. We believe keeping this growth target is significant for the authorities, as indicated by recent policy communications.”

They anticipate a 25-basis-point RRR cut in Q3, followed by another 10-basis-point policy rate cut in Q4 of this year.