(Bloomberg) — Chinese banks left borrowing costs unchanged on Monday, in line with expectations, as focus shifts to other potential central bank easing measures after top leaders pledged to stimulate the economy.
Prime interest rates on one- and five-year bonds remained unchanged at 3.7% and 4.6%, respectively, according to the People’s Bank of China. Most economists in a Bloomberg survey had predicted no change, though speculation of austerity had increased following a wave of economic news last week and a strong pledge from Deputy Prime Minister Liu He to support growth.
The prime lending rates are seen as the actual benchmark interest rates in the economy and are based on the quotes 18 qualified banks submit each month to the PBOC of rates being offered to their best customers. Rates are generally moving in line with the PBOC’s key rate for its medium-term loan facility, which remained unchanged last week.
Speculation about more monetary easing has increased after a summit financial committee led by Vice Prime Minister Liu pledged on March 16 to make monetary policy more “proactive” to support the economy in the first quarter and stabilize financial markets. It also called for appropriate new loan growth, which slowed more than expected in February.
Market parties are increasingly anticipating an early reduction in the reserve requirement, or the amount of cash that banks must hold in reserves. Many also see a possible cut in the MLF key rate in April as a way for the central bank to soften economic data for the first quarter.
Financial News, a PBOC-affiliated newspaper, commented Monday that monetary policy will become “more focused and more forward-looking” following the commitments made by the finance commission. Structural measures will continue to play an important role, the article said, calling on authorities to encourage banks to increase support for small businesses and boost consumer confidence.
“We must continue to look out for a possible RRR cut in the near future,” said Becky Liu, head of macro strategy for China at Standard Chartered Plc in Hong Kong, after the financial committee meeting.
China’s benchmark CSI 300 Index closed the morning session at 0.1%, wiping out a previous gain of a staggering 0.5%. Price-sensitive financial stocks and real estate developers weighed in on the market as traders looked for signs of different policies that will support a recent rally. The Hang Seng index had changed little, having previously risen 1.9%.
Winson Phoon, head of fixed income research at Maybank Securities Pte. Ltd, forecasts that the PBOC will cut the RRR by 50 basis points in the first half of the year to boost bank liquidity, lower borrowing costs and support credit growth. However, Bruce Pang, head of strategy and macro research at China Renaissance Securities Ltd., sees a greater chance of a rate cut than a cut in the RRR, saying the ratio’s average has already fallen to 8.4%, pushing the space is limited. for further declines.
However, with a lack of demand in the economy, monetary easing will not yet be effective in boosting growth, said Meng Xiangjuan, an analyst at SWS Research Co.
“The main problem now is how to channel money from the financial markets into the real economy, rather than having insufficient liquidity or money being too expensive,” she said.
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