China’s benchmark lending rates were kept unchanged, as expected on Thursday, following a hold of policy rates earlier this month. However, economists say Beijing will need to ramp up support to shore up the country’s sputtering economy.
The one-year loan prime rate was held steady at 3.55%, while the five-year LPR was unchanged at 4.2%, the People’s Bank of China said. The loan prime rates are calculated monthly based on the interest rates which 18 designated commercial banks charge their best clients.
Thursday’s move was widely expected after the central bank kept its key policy rate–the interest rates of the medium-term lending facility which banks use to price LPRs–unchanged on Monday.
Last month, China’s sluggish economic growth prompted authorities to lower a set of policy rates, which later guided down the benchmark loan rates and reduced the likelihood of near-term rate cuts.
A senior central bank official said last week that policy tools such as the reserve requirement ratio and MLF would be deployed to shore up the world’s second-largest economy, but economists say any future rate cuts risk further pressuring the yuan given the diverging monetary stance between China and the U.S., urging Beijing to deliver more fiscal support.
In a separate announcement on Thursday, the PBOC relaxed rules to allow companies to borrow more from overseas by raising its macro-prudential parameter for companies’ and financial institutions’ cross-border funding to 1.5 from 1.25, effective immediately. This could open the door to more capital inflows and aid the weakening yuan, analysts say.
Official data released Monday showed that China’s economy barely grew in the second quarter from the first quarter and youth unemployment hit a record high in June. Beijing currently faces multiple challenges from weak domestic consumption, damped business confidence, plunging exports and a protracted property slump, economists say.
So far, Beijing has disappointed the market by not handing out any form of large-scale stimulus, underscoring authorities’ limited options against the backdrop of mounting government debts. China’s Politburo, the country’s top decision-making body, is set to convene a meeting on economic affairs later this month and is expected to announce more stimulus to jump-start growth.
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