SHANGHAI/SINGAPORE (Reuters) – China left its benchmark lending rate unchanged for the ninth straight month on Monday, in line with market expectations, as a depreciating yuan and widening yield differential with the U.S. limited the chances of any substantial monetary policy. Space
A slew of data over the past month or so, including last week’s April indicators, suggests the economy is losing momentum after the initial post-COVID rebound and has raised hopes of more easing measures.
But given the risk of capital outflows that could further damage the yuan, some analysts now expect the People’s Bank of China (PBOC) to reduce the amount of cash banks must set aside as its next policy move.
Earlier today, China’s one-year loan market quote rate (LPR) remained at 3.30%, and the five-year LPR was flat at 4.30%.
In a Reuters poll of 23 market watchers last week, 23 forecast There is no change to this month’s rate.
“Despite the soft April performance, we do not expect policymakers to introduce major stimulus measures, as the 5% GDP growth target is still within reach and issues such as housing risks and youth unemployment need more attention. A targeted approach,” economists at Goldman Sachs (NYSE: GS) said in a note.
“In monetary policy, symbolic measures such as reserve requirements take into account the already large interest rate gap between China and the United States and the depreciation pressure on the RMB . RRR cuts are more likely than policy rate cuts.”
CNY fell below the psychologically important $1 level last week7 , hitting a five-month low. [CNY/]
The LPR exchange rate was also steady after the People’s Bank of China last week rolled over maturing medium-term lending facility (MLF) loans while keeping interest rates unchanged.
MLF rate serves as a guide for LPR, and the market mostly uses mid-term rate as a harbinger of changes in lending benchmarks.
Economists at Capital Economics said last week that the central bank aims to ensure that credit growth, which slumped sharply in April, does not slow down as “the boost to credit demand from reopening fades.” Too slow. We think the PBOC will try to avoid this,” they said.
“The downside of lowering the LPR is that it would lower returns on banks’ existing loan books, increasing net interest margins The pressure hit a record low. “
The central bank may use other tools, such as lower reserve requirement ratios, deposit rate window guidance, and liquidity injections, to steer funding costs down, they said.
The LPR that banks normally charge to their best customers is set by commercial banks designated by 23 who submit the proposed rates to the central bank every month.
Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate affects the pricing of mortgages. China was last in Aug26 cut two LPRs to boost economy.