The People’s Bank of China decided on Thursday to keep the benchmark lending interest rates unchanged during its monthly policy review. This decision was in line with market expectations.
The stabilization of the Loan Prime Rate (LPR) – the base lending rate – highlights Beijing’s continued limited efforts to ease monetary policy. This is despite a shrinking interest rate margin and a weak Chinese currency, as well as recent economic data suggesting the need for more support to boost the uneven economic recovery.
Specifically, the one-year LPR was kept at 3.45 percent, while the five-year LPR was maintained at 3.95 percent. A Reuters survey of 30 market participants found that 70 percent predicted both rates would remain unchanged, indicating the central bank’s decision was largely anticipated.
On Wednesday, the governor of the People’s Bank of China, Pan Gong Sheng, stated that China would continue its accommodative monetary policy and promote countercyclical and cyclical adjustments. He said this would help facilitate economic recovery and create a favorable monetary and financial environment for economic and social development.
While China’s economy is in a sustained recovery, it still faces challenges. Effective demand remains insufficient, there are obstacles to domestic economic circulation, and the complexity, severity, and uncertainty of the external environment have increased dramatically.
Plunging home prices
Furthermore, official data showed that new home prices in China fell at their fastest pace in over 9.5 years, as the real estate sector struggles with a recession despite government efforts to control oversupply and support heavily indebted developers. China’s new bank lending also rebounded at a much slower pace than expected in May, and some major monetary indicators reached record lows, suggesting the world’s second-largest economy is still facing difficulties accelerating its recovery.
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