On Monday, despite the U.S. Federal Reserve’s interest rate reduction last week, China maintained its benchmark lending rates for the fourth consecutive month.
According to a statement, the People’s Bank of China maintained the one-year loan prime rate at 3.0 percent and the five-year rate at 3.5 percent. Most of the new and outstanding loans are affected by the one-year rate, whereas the mortgages are affected by the five-year benchmark.
The key lending rates were last reduced by the central bank by 10 basis points in May as part of Beijing’s initiatives to stabilize its economy.
Last Thursday, the PBOC kept the seven-day reverse repo rate at 2.25%, mirroring the Fed’s move.
The benchmark lending rates, which are usually charged to the best clients of the banks, are calculated monthly depending on the proposed rates to the PBOC by the specified commercial banks.
The unchanged rates matched economists’ expectations that no major stimulus would follow recent stock market volatility, despite weaker economic signals.
On Monday, the index of the CSI 300 benchmark started better and then slipped 0.24 percent. The offshore yuan increased slightly to 7.1161 against the U.S dollar.
Since August of last year, China has experienced a worsening of the economic slowdown as a series of key indicators failed to meet expectations. Retail sales fell to 3.4 percent in August as consumption was still weak, with industrial output growth dropping to 5.2 percent, which is the lowest level.
China’s consumer prices dropped unexpectedly last month in another indicator of slow domestic demand, and deflation in wholesale prices continued for almost three years.
In August, the export growth of the country dropped to 4.4 percent, which was the lowest growth rate since February, due to the weakening effect of frontloading shipments and the burden of the U.S. trade policy on the transshipment of exports to third countries.
A team of Barclays economists stated that the momentum driven by growth slowed sharply in the third quarter because the slump in real estate in China increased, Beijing’s fiscal stimulus lost momentum, and the crackdown on excess capacity reduced industrial production. They also marked “almost all housing indicators deteriorated further” in August.
Chinese policymakers are also expected by economists to introduce marginal monetary easing later this year so that the second-largest economy in the world can meet the government-imposed annual growth objective of about 5 percent.
Managing Partner and CIO at Lotus Asset Management, Hong Hao adds, “Beijing’s focus has shifted from risk management to growth stimulation, moving from tolerating deflation to reflating the economy.”
Hao said, sensing more policy stimulus in the coming months, “China has reached a point where it must stop inefficient, debt-fueled asset accumulation and begin reducing unproductive investments.”
Barclays anticipates real-GDP growth of 4.5 percent in China in 2025, citing a smaller-than-expected slowdown. Meanwhile, “incremental policy support” is probably expected later this year.
The PBOC is anticipated by the bank to lower the seven-day reverse repo rate and loan prime rate by 10 basis points in the fourth quarter, and the reserve requirement ratio by 50 basis points, which determines the amount of money the banks are required to have in reserve.
