China is expected to leave its benchmark lending rates unchanged for the sixth consecutive time in November. Recent signals from the People’s Bank of China (PBOC) indicating it is not rushing into further monetary stimulus support this decision, according to a Reuters poll.
The benchmark lending rate (LPR), which guides the market, is determined each month following proposals submitted to the PBOC by 20 commercial banks.
All 23 economists surveyed agreed that the one-year LPR would remain at 3.0% and the five-year LPR at 3.5%.The PBOC’s decision not to change the seven-day reverse repo rate this month signaled a shift in the bank’s policy tone towards a more cautious one. The emphasis on “cross-cyclical policy adjustment,” reiterated in the third-quarter monetary policy report, was interpreted as a decrease in the need for broad-scale easing. Tommy Xie, Head of Macro Research at OCBC Bank Asya, stated that this change in wording indicates a decrease in the urgency for general interest rate cuts, suggesting that policy could now focus on “more targeted credit support.” The decline in credit costs during this period was noteworthy. The weighted average interest rate on new corporate loans fell to 3.1% in October, while the rate on new home loans decreased by 8 basis points year-on-year to 3.1%. Xinhua News Agency reported that this decline in financing costs continued throughout the year.
Some analysts believe that fiscal policy tools will be more effective than monetary measures in providing economic support. Fitch Ratings China Chief Analyst Jeremy Zook stated that monetary policy’s contribution to growth is limited due to weak credit demand, adding, “Therefore, the burden is shifting more to fiscal policy.”
In October, banks’ new loan volume fell sharply, below expectations. Experts say both households and companies are cautious about borrowing due to economic uncertainties and China-US trade tensions.
