Beijing China – October 12: People’s Bank of China (PBOC) building painted on October 12, 2020 in Beijing, China.
VCG | Visual China Group | Getty Images
China did not change its benchmark loan rates for the fourth consecutive month on Monday, despite interest rate cuts in the US Federal Reserve last week.
According to the statement, the People’s Bank of China has changed its one-year loan prime rate to 3.0%, up to 3.0%. A five-year benchmark affects mortgages, while a one-year rate affects most new and unresolved loans.
The central bank last trimmed key lending rates at 10 basis points in May as part of Beijing’s efforts to strengthen the economy.
The PBOC did not change its seven-day reverse reporate as the main policy rate last Thursday, following the Fed’s 25 base cut.
The benchmark lending rates charged to the bank’s best clients are usually calculated monthly based on the rates proposed to the proposed PBOC of a designated commercial bank.
Monday’s decision was in line with economists’ expectations that Chinese authorities would hamper major stimulus packages amid recent stock market rally, even if a series of economic data highlighted signs of fatigue in the economy.
The Benchmark CSI 300 Index opened high on Monday, and has since dropped by 0.24%. The offshore Original was only strengthened to 7.1161 against the US dollar.
China’s economic slowdown worsened in August, with a large number of important indicators expected. Due to weak consumption, retail sales slowed to 3.4% in August, but industrial production growth eased to 5.2%, marking the weakest level since last August.
Another sign of slowing domestic demand is that China’s consumer prices fell short of expectations last month, but wholesale prices deflation lasted nearly three years.
Export growth slowed to 4.4% in August, marking the lowest growth rate since February as the impact of front-load cargo faded and the US trade policy targeted exports to third countries was targeted.
Growth momentum dwindled significantly in the third quarter as China’s real estate worsened, Beijing’s fiscal stimulus package faded, and excessive capacity crackdowns curtailed industrial output, according to a team of Barclays economists, “almost all housing indicators have become even worse.”
Economists primarily hope that Chinese policymakers will implement marginal monetary easing later this year, ensuring that the world’s second-largest economy reaches the government’s annual growth target of around 5%.
“Beijing’s focus has shifted from risk management to growth stimulation, and from accepting deflation to reflecting the economy,” said Hong Hao, managing partner and CIO of Lotus Asset Management.
“China has reached the point where we must stop accumulating inefficient, debt-fuel assets and begin cutting off unproductive investments,” said Hao, hoping for more policy stimulation in the coming months.
Barclays predicts China’s actual GDP will grow by 4.5% in 2025, even “incremental policy support” citing a sharper slowdown than expected.
Banks expect PBOC to reduce its seven-day reverse repo rate and loan prime rate at 10 base points in the fourth quarter, and a reduction in the reserve requirement ratio of AA 50 base points sets the amount of cash banks that the reserve bank must hold.
