SHANGHAI, Sept 20 (Askume) – China unexpectedly kept its monthly benchmark lending rate unchanged on Friday, defying market expectations that the Federal Reserve was preparing to significantly cut interest rates as early as this week.
However, market observers generally believe that the Fed will introduce further stimulus measures to boost the struggling economy, as the Fed’s easing policy will give Beijing the opportunity to loosen monetary policy without unnecessarily damaging the yuan’s exchange rate.
The one-year loan prime rate (LPR) remains at 3.35%, and the five-year loan prime rate (LPR) remains at 3.35%. It remained unchanged at 3.85%.
A Askume survey of 39 market participants this week showed that 27, or 69%, of respondents expected both rates to be cut.
Jing Zhaopeng, senior China strategist at ANZ, said of Chinese policymakers that “rate cuts will be included in a major policy plan being reviewed by senior officials.”
“Current economic data and expectations support interest rate cuts. In addition, further reductions in the 5-year LPR are needed to lower current mortgage rates, which may cause the LPR to fall sharply again.”
Market watchers said August economic data, including indicators of lending and activity , surprised and fueled calls for more stimulus to support the world’s second-largest economy.
Analysts and policy advisers expect the least from Chinese policymakersTake steps to help the economy achieve its 2024 growth target .
Global brokerage firms have cut their forecasts for China’s 2024 growth rate due to slowing economic activity in China, which is below the government’s official target of 5%.
President Xi Jinping last week urged officials to work towards meeting the country’s annual economic and social development targets , while more measures are expected to be taken to accelerate the slow economic recovery, according to state media reports .
“It is very likely that the People’s Bank of China (PBOC) will lower interest rates soon, and banks will also lower the LPR,” commercial bank analysts said in a report.
“Slow growth requires loose monetary policy, and the Fed’s rate cut gives the central bank room to cut interest rates further.”
Monetary policy disagreements with other major economies, particularly the United States, and the devaluation of the yuan have been major obstacles limiting Beijing’s efforts to ease policy over the past two years.
But analysts said the Federal Reserve’s 50 basis point cut in interest rates on Wednesday triggered a series of expected rate cuts that could ease some of China’s policy restrictions.
Most of China’s new loans and outstanding loans are one-year LPRs. And the five-year rate affects mortgage pricing.
