Chinese banks have opted to keep their benchmark lending rates unchanged following the People’s Bank of China’s (PBOC) recent decision to hold a key loan rate steady.
This move comes as China’s economic recovery faces persistent headwinds, particularly in domestic demand and the property sector.
On Monday, the one-year loan prime rate was held at 3.45 per cent, aligning with economists’ expectations, while the five-year rate, a reference for mortgages, remained at 3.95 per cent.
These rates were confirmed by the PBOC and reflect ongoing efforts to support the economy without exerting additional pressure on the yuan.
China’s industrial sector has shown strength, driving much of the economic recovery.
However, this strength has been counterbalanced by weak domestic demand and a prolonged property market downturn.
In April, credit data revealed a concerning contraction for the first time ever, highlighting the fragile sentiment among both corporations and households.
Last week, the PBOC rolled over its maturing medium-term lending facility, a one-year policy loan, without reducing the rate.
This decision indicates a guarded approach to fostering economic recovery, aiming to avoid devaluation pressures on the yuan while maintaining financial stability.
Economists predict that the PBOC may implement rate cuts or inject additional liquidity into the financial system in the coming months.
Such measures could include reducing the reserve requirements for banks, thereby enabling them to purchase new government bonds as Beijing ramps up fiscal support.
To sustain infrastructure investments, China commenced the sale of the first batch of what will total 1 trillion yuan ($139 billion) in special sovereign bonds last Friday.
Provincial governments are also accelerating the issuance of local bonds to further bolster the economy.
Policymakers have recently introduced several initiatives aimed at stimulating domestic demand and addressing economic imbalances.
One notable measure includes a nationwide program to provide 300 billion yuan in affordable funding to help state-owned enterprises acquire unsold homes.
Additionally, the authorities have removed the floor on mortgage rates and lowered the minimum down payment requirements for homebuyers.
These steps are part of bigger efforts to rejuvenate the property sector and reduce inventory, which is critical for stabilising the market and enhancing consumer confidence.
(With inputs from Bloomberg)