SHANGHAI (Reuters) – China is expected to leave its benchmark lending rates unchanged on Thursday, a Reuters poll showed, as signs the economic recovery was gaining some momentum and persistently narrowing profit margins at lenders reduced the urgency for more easing.
The loan prime rate (LPR), normally charged to banks’ best clients, is calculated each month after 20 designated commercial banks submit proposed rates to the People’s Bank of China (PBOC).
In a Reuters survey of 33 market watchers conducted this week, 29, or 88% of all respondents expected both the one-year and five-year LPRs to remain steady, while the remaining four participants projected marginal reductions to both rates.
China last cut its policy rate in September and benchmark LPRs in October.
“Pressure from narrowing net interest margins at lenders remains high, so they don’t have the motivation to lower the LPR now,” said a trader at a Chinese bank.
“And from the central bank’s perspective, hard data from the first two months of this year were good, so it’s apparently not the appropriate time to lower rates.”
The People’s Bank of China (PBOC) said last week that it would cut interest rates and banks’ reserve requirement ratio at the appropriate time and keep liquidity ample.
A string of recent economic data, including manufacturing data, industrial output and retail sales, provided encouraging signs for the economy’s continued recovery. Beijing also rolled out more stimulus measures this week to boost domestic consumption.
Still, some analysts expect further monetary easing to support the economy as the central bank shifted to an “appropriately loose” monetary policy stance this year.
Ho Woei Chen, economist at UOB, said he expects an additional 50 to 100 basis points of reductions to banks’ RRR and 30 basis points of cuts in policy and benchmark lending rates this year.
“Depreciation pressure on the yuan may affect the timing of any interest rate cuts,” he said in a note.
“We now expect a 20-basis-point rate cut in the second quarter of 2025 and a 10-basis-point cut in the third quarter.”
(Reporting by Shanghai Newsroom; Editing by Shri Navaratnam)
