China’s Central Bank left its benchmark lending rate unchanged on Monday. The bank chose stability in the face of a weakening economy and waning consumer confidence.
The People’s Bank of China has maintained its 1-year and 5-year prime rates at 3,0%.
LPRs are key lending reference rates that are determined monthly by a panel consisting of banks. They reflect the costs of financing for the wider economy.
This rate is primarily used for short-term loans and corporate lending, while it’s the standard mortgage rate.
Growth momentum slows
After the second quarter GDP figures were released, the PBOC announced its decision shortly thereafter. The data showed that the Chinese economy grew by 5.2% over the previous year in the second quarter. This was slightly lower than the 5.4% growth recorded in the prior period.
Reuters polled economists and the median forecast was 5.1%.
However, consumer spending has shown signs of fatigue.
The retail sales growth in June was 4.8% compared to a year ago, a decline from the 6.4% rise recorded in May and below the forecast of 5.4% economists surveyed by Reuters.
Deflationary pressures persisting, calls for additional monetary ease intensified.
China’s producers prices dropped at the fastest rate in almost two years, in June. This was due to weak demand in China and ongoing uncertainty caused by global trade tensions.
After the announcement of rates, there was not much change in the offshore yuan. It traded at 7,179 US dollars.
Nomura warns about a ‘demand Cliff’
Analysts at Nomura warned that, despite the resilient headline numbers of growth, the underlying conditions could deteriorate during the second half.
The firm stated in a July 9 note that fundamentals could “deteriorate visibly” citing factors such as weakened demand, increased pressure on asset values, and a possible fall of market interest rates.
Nomura said that Beijing could be forced to announce a fresh round of stimulative measures in the second half 2025.
The fiscal situation in most cities may worsen due to these factors. Nomura said that they expect the GDP to fall to around 4.0% year-on-year in H2, from 5.1% in Q1.
The PBOC is expected to take more specific support measures over the next few months.
Investors and economics watch for signs of fiscal and monetary ease as policymakers try to stabilize growth in the face of rising challenges both domestically and globally.
The central bank is currently walking a thin line. It wants to maintain monetary policy flexibility while waiting to see if the activity level has deteriorated before taking any action.
The focus now turns to the Politburo Meeting later in the month where the policymakers will outline the country’s economic strategy.
This meeting may set the stage for future stimulus measures that will support economic growth.
The post China keeps key lending rates stable in line with expectation appeared first on ICD
This site is for entertainment only. Click here to read more
