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China has decided to maintain its benchmark lending rates at their current levels, a move that was widely anticipated by the market. This decision comes following the recent stability in the central bank’s key policy rate, amidst some signs of improvement in the overall economy.
The significance of this decision lies in China’s ambitious economic growth target of “around 5%” for the year 2024. Economists argue that achieving this target would require further stimulus measures, including monetary and fiscal easing. Notably, there is a pressing need to revitalize the struggling property sector, as a considerable portion of new and existing loans in China are tied to benchmark lending rates.
The one-year loan prime rate (LPR) remains unchanged at 3.45%, while the five-year LPR stands steady at 3.95%. This aligns with the expectations of market analysts, as indicated by a recent Reuters poll. Despite some positive indicators such as better-than-expected factory output and retail sales in the early months of the year, the property market continues to face challenges, with a notable decline in both investment and sales.
Credit growth has also moderated, with outstanding yuan loans growing at the slowest pace on record in February. Against this backdrop, the People’s Bank of China (PBOC) chose to maintain its medium-term lending facility (MLF) rate unchanged, which serves as a reference for setting the LPR by commercial banks.
Despite the unchanged rates, PBOC Governor Pan Gongsheng reiterated the commitment to keep the yuan stable, signaling a dovish stance towards monetary policy. This has fueled speculation among investors that further monetary easing measures, including reductions in bank reserves, may be on the horizon to support the economy.
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