Image: Reuters Berita 24 English - In a Reuters poll, nearly 90% of traders and economists expected China to keep benchmark interest rates ...
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| Image: Reuters |
Berita 24 English - In a Reuters poll, nearly 90% of traders and economists expected China to keep benchmark interest rates constant at its monthly fix on Monday, citing global central bank tightening as a constraint to policy manoeuvring to slow the economy.
On the 20th of each month, when 18 designated commercial banks submit recommended rates to the People's Bank of China, the loan prime rate (LPR), which banks generally charge their best clients, is set (PBOC).
In a Reuters poll, 23 out of 26 respondents indicated that neither the one-year nor the five-year LPRs will change.
One of the other three predicted a 5 basis point cut to the one-year LPR, another a 5 basis point decrease to the five-year rate, and the third predicted a cut to both rates.
Lower interest rates might aid a Chinese economy hammered by anti-pandemic efforts, but traders and economists point out that the PBOC's medium-term policy rate, which serves as a reference to the LPR, remained steady this week.
This confirmed market expectations that officials would be reluctant of cutting interest rates when other countries tightened, as this would put downward pressure on the currency rate. The PBOC keeps a tight grip on the yuan.
"China has long maintained an autonomous monetary policy," said Wang Qing, chief macroeconomic researcher at Golden Credit Rating, "but at this moment it will focus more on balancing internal and external variables, seeking to prevent a direct confrontation in monetary policy stance" with the US.
Following the US Federal Reserve's 75-basis-point boost to combat excessive inflation, central banks throughout Europe raised interest rates on Thursday, some by surprising amounts.
"If the issues confronting Western central banks now teach China anything, it is that monetary policy should not be overly loose," BNP Paribas economists said.
"In recent years, the PBOC has been vociferous in its criticism of (developed) countries' imprudent monetary accommodation. As a result, the PBOC has been more cautious in its easing."
Last month, the central bank cut the five-year LPR by 15 basis points. Some traders believe it did so to help China's beleaguered housing sector, but that the impact has yet to be determined after only one month.
Iris Pang, ING's top economist for Greater China, believes the five-year LPR will be cut again this month.
"Cutting the 5-year prime rate means lower mortgage and long-term loan interest rates," she explained.
"Lower interest rates may also assist infrastructure projects."
