China left benchmark lending rates unchanged at a monthly fixing on Monday, in line with market expectations.

The steady monthly LPR fixings come after China reported encouraging first-quarter economic data, which removes the urgency for Beijing to release monetary stimulus to aid the economic recovery.

 

Meanwhile, a weakening yuan, uncertainty around timing of the first Federal Reserve interest rate cut and falling net interest margins (NIMs) at commercial lenders continue to constrain the easing efforts.

 

With the first-quarter gross domestic product (GDP) growth exceeding the annual target of “about 5 per cent,” market analysts and traders expect the policy stance to remain unchanged at the upcoming Politburo meeting.

 

The one-year loan prime rate (LPR) was kept at 3.45 per cent, while the five-year LPR was unchanged at 3.95 per cent.

 

In a Reuters survey of 30 market watchers conducted last week, all respondents expected both rates to stay unchanged.

China’s economy grew 5.3 per cent in the first quarter year-on-year, comfortably beating analysts’ expectations, a welcome sign for policymakers as they try to shore up demand and confidence in the face of a protracted property crisis.

 

Chinese banks extended 3.09 trillion yuan in new yuan loans in March, up from 1.45 trillion yuan in February but falling short of analyst expectations.

 

Context

 

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.

 

The five-year LPR was lowered by a decent 25-basis-point in February to support the housing market.

 

China’s central bank left a key policy interest rate unchanged when rolling over maturing medium-term loans last week, and drained some cash from the banking system through the bond instrument.

 

The medium-term lending facility (MLF) rate serves as a guide to the LPR and markets mostly use the MLF rate as a precursor to any changes to the lending benchmarks.

First Published: Apr 22 2024 | 8:32 AM IST