SHANGHAI (Reuters) -China kept benchmark lending rates unchanged for the third consecutive month on Wednesday, meeting market expectations, as authorities signalled they are in no rush to deliver monetary stimulus despite a string of recent disappointing economic data.
WHY IT’S IMPORTANT
The steady LPR fixings highlighted the central bank’s preference for targeted structural policies to support specific sectors of the economy, rather than resorting to broad-based monetary easing.
A de-escalation in trade tensions between Washington and Beijing also reduced urgency for more stimulus, as the world’s two largest economies agreed to extend a tariff truce for another 90 days.
BY THE NUMBERS
The one-year loan prime rate (LPR) was kept at 3.0%, while the five-year LPR was unchanged at 3.5%.
In a Reuters survey of 23 market participants conducted this week, all participants predicted no change to either of the two rates.
CONTEXT
In the latest quarterly monetary policy report, the central bank said it would implement and refine moderately loose monetary policy while cautioning against funds idling within the banking system.
A string of July data pointed to signs of economic slowdown. China’s factory output growth slumped to an eight-month low last month, retail sales slowed sharply, and new yuan loans contracted for the first time in 20 years.
China said last week that it would offer interest subsidies for businesses in eight consumer service sectors to support services consumption.
KEY QUOTES
** HO WOEI CHEN, ECONOMIST, UOB
“Authorities may place greater emphasis on more targeted measures on the property market and consumption demand such as the loan interest subsidy policy and trade-in subsidies.”
She expects a 10-basis-point rate reduction in the fourth quarter of this year, adding the “prospect of a further 50-basis-point cut to reserve requirement ratio (RRR) remains in place.”
** PEOPLE’S DAILY
China “must continue to exert efforts in macro policies and increase them at appropriate time to promote the continued implementation of existing and established policies while maintaining policy continuity and stability,” the official People’s Daily said in a commentary on Wednesday.
It added that it will enhance policy flexibility to cope with changes in the external environment.
(Reporting by Shanghai Newsroom; Editing by Jacqueline Wong and Shri Navaratnam)
