China maintained status quo on the benchmark rates for corporate and household loans on Wednesday amid signs of an economic recovery despite inflationary pressures and aggressive global interest rate hikes.
The one-year loan prime rate (LPR) was kept at 3.7%, and the five-year LPR was unchanged at 4.45%, in line with market expectations.
China and Japan have been major outliers in a global run of policy tightening to tame rampant inflation with Beijing focused on stimulating a Covid-hit economy.
However, analysts see a lessening need for aggressive monetary easing after June economic data pointed to signs of recovery, even as China’s second quarter gross domestic product only grew a tepid 0.4% from a year earlier.
“The economy has started to recover and there is no need to lower LPR,” Xing Zhaopeng, senior China strategist at ANZ, said.
But Xing still sees the possibility of LPR reductions in the fourth quarter of this year.
More Pain Ahead For China
Many economists expect China’s economy to face more pressure over the coming months from a slowdown in global growth and a hit to consumption from soaring consumer prices.
The People’s Bank of China (PBOC) had recently signalled a less accommodative monetary policy in the second half of the year.
A PBOC official told a press conference last week that liquidity conditions were ample, suggesting no urgent need to further lower key lending rates.
“Overall, the latest tone implies that PBOC is in no urgency to cut its RRR or LPR in the near term,” said Tommy Xie, head of Greater China research at OCBC Bank.
“We think monetary policy may not be the best tool to solve the current housing problem while focus may be shifted to fiscal policy and administrative measures.”
China’s property market, which has been hit hard by a debt crisis, is facing more pressure from a scare caused by the proliferation of threats by homebuyers to withhold payments for stalled projects.
China slashed the five-year LPR by an unexpectedly wide margin of 15 basis points in May, as policymakers sought to revive the ailing housing sector and prop up the economy.
Most new and outstanding loans in China are based on the one-year LPR. The five-year rate influences the pricing of mortgages.
- Reuters with additional editing by Sean O’Meara