SHANGHAI – China unexpectedly left benchmark lending rates unchanged at the monthly fixing, confounding market expectations that were primed for a move after the US Federal Reserve delivered an outsized interest rate cut earlier this week.
However, market watchers widely believe further stimulus will be rolled out to prop up an ailing economy, as the Fed’s aggressive easing offers Beijing leeway to loosen monetary policy without unduly hurting the renminbi.
A string of August economic data, including credit lending and activity indicators, surprised to the downside and raised the urgency to roll out more stimulus measures to prop up the world’s second-biggest economy.
China is also Singapore’s single largest export market.
On Sept 20, China kept its one-year loan prime rate (LPR) at 3.35 per cent, while the five-year LPR was unchanged at 3.85 per cent.
Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.
In a Reuters survey of 39 market participants conducted this week, 69 per cent of respondents expected both rates to be trimmed.
Monetary policy divergence with other major economies, particularly the United States, and a weakening Chinese renminbi have been the key constraints limiting Beijing’s efforts to loosen policy over the past two years.
But the US central bank’s 50-basis-point cut on Sept 18 that kicked off an anticipated series of interest rate cuts has unshackled some of China’s policy levers, analysts say.
“There is a good chance that the People’s Bank of China (PBOC) will lower rates and banks to lower LPRs soon,” analysts at Commerzbank said in a note.
“Lacklustre growth calls for monetary policy easing, and the Fed rate cuts provide room for PBOC to cut.”
Analysts and policy advisers expect Chinese policymakers to step up measures to
