China unexpectedly leaves lending rates unchanged despite Fed’s outsized rate cut
Sign up now: Get ST's newsletters delivered to your inbox
Still, market watchers widely believe China will roll out further stimulus to prop up an ailing economy, especially given the Fed’s aggressive easing.
PHOTO: REUTERS
Follow topic:
SHANGHAI - China unexpectedly left benchmark lending rates unchanged at the monthly fixing, confounding market expectations that were primed for a move after the US Federal Reserve delivered an outsized interest rate cut earlier this week.
However, market watchers widely believe further stimulus will be rolled out to prop up an ailing economy, as the Fed’s aggressive easing offers Beijing leeway to loosen monetary policy without unduly hurting the renminbi.
A string of August economic data, including credit lending and activity indicators, surprised to the downside and raised the urgency to roll out more stimulus measures to prop up the world’s second-biggest economy.
China is also Singapore’s single largest export market.
On Sept 20, China kept its one-year loan prime rate (LPR) at 3.35 per cent, while the five-year LPR was unchanged at 3.85 per cent.
Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.
In a Reuters survey of 39 market participants conducted this week, 69 per cent of respondents expected both rates to be trimmed.
Monetary policy divergence with other major economies, particularly the United States, and a weakening Chinese renminbi have been the key constraints limiting Beijing’s efforts to loosen policy over the past two years.
But the US central bank’s 50 basis point cut on Sept 18 that kicked off an anticipated series of interest rate cuts has unshackled some of China’s policy levers, analysts say.
“There is a good chance that the People’s Bank of China (PBOC) will lower rates and banks will lower LPRs soon,” analysts at Commerzbank said in a note.
“Lacklustre growth calls for monetary policy easing, and the Fed rate cuts provide room for PBOC to cut.”
Analysts and policy advisers expect Chinese policymakers to step up measures to at least help the economy meet the increasingly challenging 2024 growth target.
Faltering Chinese economic activity has prompted global brokerages to scale back their 2024 China growth forecasts to below the government’s official target of about 5 per cent.
President Xi Jinping last week urged the authorities to strive to achieve the country’s annual economic and social development goals, state media reported, amid expectations that more steps are needed to bolster a flagging economic recovery.
“The rate cut is likely to be included in a larger policy package, which is being reviewed by senior officials,” said ANZ senior China strategist Xing Zhaopeng, referring to Chinese policymakers.
“Current economic data and expectations all support a rate cut. And, lowering existing mortgage loan rates also requires further reductions in the five-year LPR, which may lead to a one-time and significant decline in the LPR in the fourth quarter.” REUTERS
