Chinese banks have decided to keep their benchmark lending rates unchanged for September, as the People’s Bank of China (PBOC) refrains from introducing further monetary stimulus amid challenges like record-low profit margins.
The one-year loan prime rate (LPR) remains at 3.35%, while the five-year LPR, which influences long-term loans such as mortgages, stays at 3.85%. These decisions align with expectations from most economists surveyed by Bloomberg.
This inaction follows the PBOC’s decision to maintain the seven-day reverse repurchase rate since a cut in July. Banks have been hesitant to lower lending rates further due to their net interest margin, which has declined to a historic low of 1.54% as of June.
Despite the current rates, there is growing speculation that the PBOC may ease policies soon. The central bank has indicated it is preparing additional measures to stimulate the economy, particularly in light of the US Federal Reserve’s recent interest rate cuts, which may lessen the downward pressure on the yuan.
Bloomberg Economics anticipates that the PBOC will reduce its policy rates by at least 10 basis points in the fourth quarter, potentially allowing banks to lower their LPRs. The urgency for stimulus is heightened as the world’s second-largest economy seeks to achieve its annual growth target of approximately 5%. Recent data indicates that production, consumption, and investment have cooled more than expected, reflecting weakened confidence amid a property slump and concerns over deflation.
The PBOC has shifted its approach to guiding market rates by utilizing short-term tools instead of the medium-term lending facility, previously employed for this purpose. Following recent data showing slow economic activity, calls for increased fiscal and monetary support are rising, though experts caution that lower rates alone may not be sufficient to address the underlying demand issues in the economy.
CNBC, Bloomberg, and South China Morning Post contributed to this report.
