China keeps interest rates unchanged and hopes for economic rebound

A man looks at his smartphone as he walks past the People’s Bank of China building on May 20, 2022 in Beijing.

Jiang Qiming | China News Service | Getty Images

China kept its benchmark lending rates for business and household loans unchanged on Wednesday as policymakers took a cautious approach amid signs of economic recovery, growing domestic inflationary pressures and aggressive rate hikes. world rates.

At the monthly fixing, the one-year loan prime rate (LPR) was held at 3.70% and the five-year LPR was unchanged at 4.45%, in line with market expectations from 22 survey respondents. Reuters snapshot taken this week.

China, along with Japan, has been a major outlier in a global round of policy tightening to rein in runaway inflation, with Beijing focusing on stimulating a Covid-hit economy.

However, analysts see less need for aggressive monetary easing after June economic data showed signs of recovery, even as China’s second-quarter gross domestic product rose by only a weak 0 .4% compared to the previous year.

“The economy has started to recover and there is no need to lower the LPR,” said Xing Zhaopeng, senior China strategist at ANZ.

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But Xing still sees the possibility of LPR cuts in the fourth quarter of this year. Many economists expect China’s economy to come under more pressure in the coming months from slowing global growth and a hit to consumption from soaring consumer prices.

The People’s Bank of China (PBOC) had recently announced a less accommodative monetary policy in the second half.

A PBOC official told a news conference last week that liquidity conditions were adequate, suggesting there was no urgency to cut policy rates further.

“Overall, the latest tone implies that there is no urgency for the PBOC to cut its RRR or LPR in the near term,” said Tommy Xie, head of Greater China research at OCBC Bank.

“We believe that monetary policy may not be the best tool to solve the current housing problem, when the focus is likely to shift to fiscal policy and administrative measures.”

China’s property market, which has been hit hard by a debt crisis, is facing increased pressure from fear caused by the proliferation of homebuyers’ threats to withhold payments for stalled projects.

China cut the five-year LPR by a surprisingly wide margin of 15 basis points in May as policymakers sought to revive the struggling housing sector and support the economy.

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

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