Image: Reuters Berita 24 English - On Monday, China maintained its benchmark lending rates for corporate and household loans, as expected, d...
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| Image: Reuters |
Berita 24 English - On Monday, China maintained its benchmark lending rates for corporate and household loans, as expected, despite global central banks' rate hikes making it difficult for Beijing to decrease rates to support a lagging home economy.
Markets believe Chinese officials are concerned about the possibility of the yuan depreciating and capital outflows if they pursue more monetary easing to support a COVID-19-affected economy at a time when other major nations are tightening their rate policies.
The one-year loan prime rate (LPR) remained constant at 3.70 percent, while the five-year LPR remained at 4.45 percent.
"Perhaps there is some hesitancy in loosening monetary policy to stimulate economic activity," said Stephen Innes, managing partner at SPI Asset Management. "This could represent some prudence in moving in the opposite direction to other central banks, particularly the Federal Reserve."
"However, it appears that greater liquidity injections and credit-stimulating measures are only a matter of time."
Following the Fed's 75-basis-point hike to combat excessive inflation, central banks throughout Europe raised interest rates last week, some by an amount that surprised markets.
"While the PBOC has little to fear from a weaker currency — the renminbi is still exceptionally robust – the last thing it wants is to be forced to defend against a sharp, potentially destabilising sell-off," Capital Economics economists said earlier.
"If it dropped rates now, when practically every other major central bank has become much more hawkish, that could plausibly happen."
Divergent Sino-US policies wiped out China's yield edge in April, causing the yuan to fall to a new low for the month. Furthermore, a deeper inversion of U.S. and Chinese government-bond yields could reignite devaluation pressure on the Chinese currency.
In a Reuters poll last week, nearly 90% of traders and economists expected China to maintain both rates steady.
Last month, China slashed the five-year LPR, the benchmark reference rate for mortgages, by an unexpectedly large margin in an effort to boost the economy's faltering housing industry.
The one-year LPR is used for the majority of new and ongoing loans in China. Mortgage rates are influenced by the five-year rate.
