A woman walks past the headquarters of the People’s Bank of China (PBOC), the central bank, in Beijing, China, September 28, 2018. REUTERS/Jason Lee/File Photo ACKNOWLEDGE RIGHTS
SHANGHAI/SING`ORE, Oct 20 (Reuters) – China left its key interest rates unchanged at its monthly setting on Friday, in line with market expectations, as a range of economic data suggested the economy was stabilizing and a weaker yuan encouraged further easing monetary policy restricted.
The one-year key interest rate (LPR) was left at 3.45%, while the five-year LPR remained unchanged at 4.20%.
Better-than-expected third-quarter gross domestic product (GDP) and retail sales data suggest China’s economic recovery is gradually improving and requires less financial support.
“Economic activity has stabilized and authorities can afford to wait a while before introducing further monetary easing in the future,” emerging market analysts at TD Securities said in a research note.
Bearish sentiment toward the yuan was also seen as a factor against further rate cuts. The yuan has depreciated more than 5% against the dollar this year, and increasing liquidity would put additional pressure on the currency.
Most new and outstanding loans in China are based on the one-year LPR, while the five-year interest rate influences mortgage pricing.
In a Reuters poll of 29 market analysts and traders, almost all participants predicted no change in the one-year LPR, while all expected the five-year rate to remain stable.
The stable LPR fixes follow the central bank’s decision on Monday to extend maturing medium-term policy loans while keeping the interest rate on them unchanged.
The Medium-Term Credit Facility (MLF) interest rate serves as a guide to the LPR and is viewed by markets as a precursor to any changes in credit benchmarks.
While interest rates remained unchanged, the PBOC on Monday provided the largest cash support since late 2020 to allow banks to lend at a time when financing conditions have been tight due to large bond deliveries and tax payments collected by the government.
Market participants are not ruling out an interest rate cut in the next few months.
Barclays economists expect another 10 basis point rate cuts in the fourth quarter and first quarter of next year as deflation risks remain and domestic demand conditions remain weak.
China cut its benchmark one-year loan rate in August, but surprised markets by leaving the five-year loan rate unchanged.
So far this year, the 1-year and 5-year LPRs have been cut by 20 and 10 basis points, respectively.
The LPRs that banks typically charge their best customers are set by 18 designated commercial banks, which submit proposed interest rates to the central bank each month.
reporting by Li Gu and Tom Westbrook; Edited by Edmund Klamann and Jacqueline Wong
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