China held benchmark lending rates constant at a monthly fixing on Wednesday as economic stabilization and a weaker yuan decreased the need for quick monetary easing.
The world’s second-largest economy was recovering after a dramatic contraction, but yuan depreciation decreased the need for aggressive interest rate cuts.
The one-year LPR remained at 3.45% and the five-year at 4.20%.
The five-year LPR affects mortgage prices, although the one-year LPR governs most new and ongoing loans in China.
All 29 market analysts and traders surveyed by Reuters expected the one-year LPR to remain unchanged, while most expected the five-year rate to remain stable.
The stable LPR fixes follow the central bank’s decision last week to roll over maturing medium-term policy loans and maintain their interest rates.
The medium-term lending facility (MLF) rate guides the LPR, and markets expect further revisions to lending benchmarks.
The Chinese yuan has fallen more than 5% versus the dollar this year due to widening yield differentials with other major countries, mainly the US, and weakening domestic development, leading officials to increase measures to stabilize it.
At a news conference on Wednesday, China central bank official Zou Lan said the yuan exchange rate versus a basket of currencies should be monitored more.
China would reduce market disruptions, correct one-sided yuan fluctuations, and prevent currency overshooting, said Zou.
“Monetary policy rollout maintains its steady pace, and there are still chances for LPR reductions next month,” said ANZ senior China strategist Xing Zhaopeng.
Since banks have lowered deposit rates, net interest margin does not prevent rate cuts.”
Xing said economic statistics will improve in the fourth quarter, and the low base effect will ensure growth above 5%.
The policy impact will last several quarters. He raised his 2023 and 2024 GDP forecasts to 5.1% and 4.2%.
For the second time this year, China’s central bank slashed banks’ reserve requirements this week to bolster liquidity and the economy.
Some market experts claimed recent property softening measures anticipate five-year LPR decreases and further policy stimulus in coming months despite the consistent LPR.
“In the coming months, we expect property sales volume to stabilise at low levels and infrastructure investment to grow at a robust but slower pace on a high base,” said UBS chief China economist Wang Tao.
We expect real GDP growth of 4.8% in 2023. Future growth is most unclear due to property crisis and policy relaxation.”
China lowered the one-year benchmark lending rate in August but kept the five-year rate unchanged, surprising investors.
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