CHINESE banks maintained their benchmark lending rates following the central bank’s recent decision to stand pat on monetary policy.
The one-year loan prime rate (LPR) was held at 3.45 per cent on Wednesday (Mar 20), in line with almost all of the 22 forecasts from economists surveyed by Bloomberg. The five-year rate, a reference for mortgages, was kept at 3.95 per cent, according to the People’s Bank of China (PBOC), also as expected.
The benchmark CSI 300 Index fluctuated, last trading down 0.1 per cent as it hovered near its highest level of the year. The yuan was steady at 7.1992 versus the US dollar as at 10.27 am in Shanghai.
Economic data published this week showed that the country’s industrial sector and investment recorded a solid start to the year, data that came after policymakers set an ambitious goal of around 5 per cent growth for 2024.
The new data partly offset worries over a persistent slowdown in credit expansion. Loans grew at the slowest pace on record in February, reflecting sluggish borrowing demand despite earlier monetary and fiscal easing steps.
“Given China’s robust activity growth year to date, the urgency for introducing further monetary easing has diminished,” said Serena Zhou, senior China economist at Mizuho Securities.
The loan rates are based on the interest rates that 20 banks offer their best customers, and are published monthly by the PBOC. They are quoted as a spread over the central bank’s one-year policy rate, or the medium-term lending facility (MLF).
The PBOC kept that rate unchanged again last week and drained cash from the banking system for the first time since November 2022 via the MLF. The move was likely to avoid too much cash circulating within the financial system without flowing into the real economy.
The Chinese central bank is likely taking a wait-and-see approach following a record cut to the five-year LPR last month and amid decisions by Bank of Japan and the Federal Reserve this week, said Kiyong Seong, lead Asia macro strategist at Societe Generale in Hong Kong.
The PBOC is expected to maintain a loose monetary policy this year and push borrowing costs lower, though economists are divided on the timing of the next rate cut. Some argue that banks will need to lower their saving rates before a cut to lending rates to preserve their narrowing profit margins.
PBOC governor Pan Gongsheng had said this month that he sees room to lower banks’ reserve requirement ratio, which would free up long-term liquidity.
Seong said that after the move by Chinese banks on Wednesday “market expectations about a further gradual policy rate cut remain intact”. BLOOMBERG
