SHANGHAI: China kept its benchmark lending rates unchanged for the sixth straight month in February, as expected, and the world’s second-largest economy showed more signs of recovery from a pandemic-induced slump.
A string of better-than-expected data recently suggests economic activity is picking up as Beijing exited its strict zero-COVID strategy in December and shifted to a pro-growth policy stance.
The one-year LPR remained unchanged at 3.65 percent, while the five-year LPR remained unchanged at 4.30 percent.
“We expect the PBOC to remain accommodative in the first half of this year, but only through liquidity-related actions, not rate cuts,” Barclays analysts said in a note.
“Unlike the US and EU, China remains the outlier in monetary policy, with inflation still benign and recovering but still weak activity creating room for the PBOC to remain accommodative in the first half” .
In a survey of 27 market observers, 21, or 78 percent of all participants, did not forecast any rate change.
New bank loans in China rose more than expected to a record 4.9 trillion yuan in January as the central bank seeks to jumpstart the recovery, while new home prices rose for the first time in a year, since Beijing intensified support for the real estate sector that represents a quarter of the national economy.
Market participants also said the LPR decision was within expectations as the People’s Bank of China (PBOC) increased medium-term liquidity injections, rolling over policy loans due last week and holding the rate. interest unchanged.
The Medium Term Lending Facility (MLF) rate serves as a guide for the LPR and the markets primarily use the medium term rate as a precursor to any changes in lending benchmarks.
Despite the recovery in momentum, some analysts expect rates to decline after China’s annual parliamentary meeting in March, when the government announces key growth targets for the year.
“We believe that the PBOC can lower the MLF rate and banks will subsequently lower the LPR from March after the annual session of the National People’s Congress which is scheduled to start on March 5,” said Tommy Wu, a senior economist at Commerzbank. .
“Macro policy stimulus is likely to be announced during the annual session, and it will be a good time for the PBOC to cut rates and signal that it is ready to support the economic recovery.”
Tommy Xie, head of Greater China research at OCBC Bank, agreed that rates are likely to be lowered in the coming months.
“Easy monetary policy is likely to work hand in hand with expansionary fiscal policy in the face of weak domestic demand. A lower interest rate will help minimize the cost of issuing government bonds,” Xie said, adding that a lower mortgage rate could also help defuse systemic risk.
The LPR, which banks normally charge their best customers, is set by 18 designated commercial banks that submit rate proposals 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 influences the price of mortgages. China last cut both rates in August to boost the economy.