Beijing. China unexpectedly kept benchmark interest rates unchanged at its monthly rate setting on Friday, contrary to market participants’ expectations for a move after the U.S. Federal Reserve cut interest rates by half a percentage point (to a range of 4.75 to 5.00 percent) in the middle of this week.
However, market watchers widely believe that fresh stimulus will be deployed to shore up the ailing economy as the Federal Reserve’s easing gives Beijing room to ease monetary policy without unduly hurting the yuan, China’s currency.
The one-year loan prime rate (LPR) remained at 3.35 percent, while the five-year LPR remained at 3.85 percent.
In a survey of Reuters When the survey was conducted this week among 39 market participants, 27, or 69 percent of all respondents expected both rates to be cut.
“The rate cut is likely to be included in a broader policy package, which is being reviewed by senior officials,” said Xing Zhaopeng, senior China strategist at ANZ, referring to Chinese officials in charge of monetary policy.
“Current economic data and expectations support a rate cut. In addition, the lowering of existing mortgage rates also requires further reductions in the 5-year LPR, which may result in a one-time, significant decline in the LPR in the fourth quarter.”
A raft of economic data for August, including activity and lending indicators, surprised on the downside and increased the urgency for more stimulus measures to shore up the world’s second-largest economy, market watchers said.
Analysts and policymakers expect Chinese monetary policymakers to step up measures to at least help the economy meet its increasingly elusive 2024 growth target.
The weakening Chinese economic activity has led international rating agencies to lower their growth forecasts for 2024 below the government’s official target of around 5 percent.
President Xi Jinping last week urged authorities to strive to meet the country’s annual economic and social development goals, state media reported, amid expectations that more measures are needed to shore up a flagging economic recovery.
“There is a high probability that the People’s Bank of China (PBOC) will cut rates and banks will soon lower long-term interest rates,” Commerzbank analysts said in a note.
“Weak growth calls for easing monetary policy, and Fed rate cuts give the PBOC room to cut.”
Monetary policy divergence from other major economies, particularly the United States, and the weakening of the Chinese yuan have been the main constraints limiting Beijing’s efforts to ease its policy over the past two years.
However, the US central bank’s 50 basis point cut on Wednesday, which kicked off an anticipated series of interest rate cuts, has released some of China’s policy levers, analysts say.
Most new and outstanding loans in China are based on the one-year rate, while the five-year rate influences mortgage pricing.
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– 2024-09-26 08:22:24
