China’s benchmark lending rates have remained unchanged on Thursday, according to the People’s Bank of China. This decision was expected, as the central bank had previously held its key policy rate earlier this month. Despite this, economists believe that Beijing will need to provide additional support to bolster the country’s struggling economy.
Loan Prime Rates Hold Steady
The one-year loan prime rate (LPR) has been kept at 3.55%, while the five-year LPR remains unchanged at 4.2%. These rates are calculated on a monthly basis, taking into account the interest rates charged by 18 designated commercial banks to their top clients.
Anticipated Move Following Key Policy Rate Hold
The decision to maintain the rates was widely anticipated after the central bank chose not to make any changes to its key policy rate, which determines the interest rates for medium-term lending facilities. This move was announced earlier this week.
Previous Rate Adjustments Aimed at Stimulating Growth
Future Support Measures and Monetary Divergence
A senior official from the central bank recently stated that tools such as the reserve requirement ratio and medium-term lending facilities would be utilized to support the world’s second-largest economy. However, economists caution that further rate cuts may put additional pressure on the Chinese yuan due to the differing monetary policies between China and the United States. As a result, they urge Beijing to focus on delivering more fiscal support in order to address economic challenges effectively.
Chinese Central Bank Relaxes Rules on Overseas Borrowing
In a recent development, the People’s Bank of China (PBOC) has decided to loosen its regulations, allowing companies to borrow more from overseas. The PBOC has raised its macro-prudential parameter for both companies and financial institutions’ cross-border funding from 1.25 to 1.5, effective immediately. This policy change is expected to have positive implications by attracting more foreign capital, which could potentially help to strengthen the weakening yuan.
China’s economy faced major setbacks in the second quarter. The recent release of official data revealed that it barely experienced any growth compared to the first quarter. Furthermore, youth unemployment reached a record high in June. Economists believe that Beijing currently grapples with several challenges including weak domestic consumption, dampened business confidence, plummeting exports, and an extended property market downturn.
Despite these difficulties, the market has been disappointed with Beijing’s response so far. The government has refrained from implementing any significant measures of stimulus, highlighting its limited options given the mounting government debts. However, China’s Politburo, which is the country’s top decision-making body, is scheduled to hold a meeting on economic affairs later this month. It is widely anticipated that during this meeting, the government will announce additional stimulus measures in an effort to revitalize economic growth.