SHANGHAI听–听颁丑颈苍补听stood pat on its benchmark听濒别苍诲颈苍驳听rates for corporate and household loans, as expected, on Monday, with global central banks’ rate increases making it tough for Beijing to stimulate a weak domestic economy by lowering rates.
Markets widely believe that Chinese听辫辞濒颈肠测makers are听飞补谤测听of听谤颈蝉办蝉听that the yuan will depreciate and capital outflows will be triggered if they embark on further monetary easing to underpin a COVID-19-hit economy at a time when other major economies are tightening their rates policies.
The one-year loan prime rate (LPR)聽CNYLPR1Y=CFXS听飞补蝉 kept at 3.70%, and the five-year LPR聽CNYLPR5Y=CFXS听飞补蝉听耻苍肠丑补苍驳别诲听at 4.45%.
“Perhaps there is some reluctance in loosening monetary听辫辞濒颈肠测聽to support economic activity, which could reflect some caution in moving in the opposite direction to other central banks, particularly the Federal Reserve,” said Stephen Innes, managing partner at SPI Asset Management.
“It seems a matter of time, however, before there are larger liquidity injections and measures to boost credit.”
Central banks across Europe raised interest rates last week, some by a level that shocked markets, in the wake of the Fed’s 75 basis point hike to combat high inflation.聽
“While the PBOC has little to fear from a weaker currency 鈥 the renminbi remains extremely strong 鈥 the last thing it wants is to have to defend against a sharp, potentially destabilizing sell-off,” economists at Capital Economics said in a note earlier.
“That could plausibly happen if it lowered rates now when almost every other major central bank has turned much more hawkish.”
Divergent Sino-U.S. policies have wiped out听颁丑颈苍补‘s yield advantage in April, triggering a record monthly tumble in the yuan聽CNY=CFXS. And a deeper inversion of U.S. and Chinese government-bond yields聽US10YT=RR,听CN10YT=RR聽could revive such depreciation pressure on the Chinese currency.
About 90% of traders and analysts in a Reuters survey last week expected聽颁丑颈苍补听to keep both rates听耻苍肠丑补苍驳别诲.
颁丑颈苍补听lowered the five-year LPR, the benchmark reference rate for mortgages, by an unexpectedly wide margin last month, in a bid to revive the ailing housing sector to prop up the economy.聽
Most new and outstanding loans in聽颁丑颈苍补听are based on the one-year LPR. The five-year rate influences the pricing of mortgages. – Reuters
