China expectedly keeps key lending rates steady after May cut

China expectedly kept its benchmark lending rates unchanged Friday, following the sweeping monetary easing measures rolled out last month to boost growth.

The People’s Bank of China held the 1-year loan prime rate at 3.0% and 5-year LPR at 3.5%, according to a statement Friday, in line with Reuters poll estimates.

Last month, Chinese authorities cut the lending rates for the first time since October by 10 basis points, in their bid to cushion the impact from trade tensions with Washington. A slew of commercial banks also trimmed their deposit rates to protect their net interest margin.

LPR, normally charged to banks’ best clients, is calculated based on a survey of dozens of designated commercial banks that submit proposed rates to the central bank.

The 1-year LPR influences corporate and most household loans in China, while the 5-year LPR serves as a benchmark for mortgage rates.

Nomura has trimmed the rate-cut forecast for the fourth quarter this year to 10 basis points from 15 basis points, while retaining estimates for a 50-basis-point cut in the reserve requirement ratio.

Chinese authorities are likely to exercise “limited urgency” in rolling out additional fiscal stimulus in the near term, Beijing might still be compelled to ramp up policy support in the second half of this year as effects from businesses’ frontloading temper, Nomura economists said.

Recent remarks from Chinese policymakers also suggest a “strong degree of satisfaction” with the current stance and outcomes of China’s monetary policy, said Bruce Pang, adjunct associate professor at CUHK Business School. 

The officials are increasingly inclined to place interest rate cuts and other monetary tools in a more “restrained, supporting role,” while exploring alternative avenues to stimulate economic growth, Pang added.

Zhu Hexin, head of the State Administration of Foreign Exchange, said Wednesday at a high-profile financial forum in Shanghai that China’s ability to counter forex market volatility has improved.

PBOC Governor Pan Gongsheng has stressed Beijing’s ambition to expand the international use of the digital yuan and called for a multi-polar global currency system.