China’s central bank on Monday kept the benchmark lending rates unchanged, as expected, despite recent data signaling a patchy economic recovery.
The steady rates were widely expected after the People’s Bank of China kept its key policy rate–the medium-term lending facility interest rate which banks use to price LPR–unchanged last week as China’s banks started to lower deposit rates amid narrowing interest margins.
The one-year loan prime rate was kept steady at 3.65% while the five-year LPR was unchanged at 4.3%, the PBOC said.
The loan prime rates are calculated monthly based on the interest rates which 18 designated commercial banks charge their best clients.
Several analysts expect Beijing to roll out monetary easing in the coming months to support the economy, as the April data for retail sales, factory production and fixed-asset investment were all below expectations.
“We now expect 10bp cuts to the MLF rate and LPR in mid-June,” Nomura economists said in a note to clients last week.
“As China’s economy moves out of the post-Covid sweet spot, Beijing may have to introduce other supportive measures, including adding transfers to local governments and SOEs via its policy banks,” they said.
The PBOC said in a report last week that it would work to expand domestic demand while striking a balance between economic growth and prices.
“From a domestic perspective, the ‘scar effect’ of the pandemic has not yet faded, residents’ income expectations are still recovering, young people are under greater employment pressure, the sustainability of consumption recovery momentum is facing challenges, government investment is still constrained to boost social investment, and global economic growth is slowing,” it said.
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