China’s economic recovery has lost steam due to a worsening property slump, weak consumer spending and tumbling credit growth, adding to the case for authorities to release more policy stimulus
China cut its one-year benchmark lending rate on Monday as authorities seek to ramp up efforts to stimulate credit demand, but surprised markets by keeping the five-year rate unchanged amid broader concerns about a rapidly weakening currency.
The one-year loan prime rate was lowered by 10 basis points to 3.45 per cent from 3.55 per cent previously, while the five-year LPR was left at 4.20 per cent. The onshore yuan eased in early trade to 7.3078 per dollar, compared with the previous close of 7.2855, while benchmark Shanghai Composite index and the blue-chip CSI 300 index also declined.
The medium-term lending facility rate serves as a guide to the LPR and is widely read by markets as a precursor to future changes to the lending benchmarks. “We interpret the status quo of five-year LPR was a signal that the Chinese banks are reluctant to cut rates at the expense of rate differential margin,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.
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