China maintained its benchmark lending rates at the monthly fixing, aligning with market expectations. China recently reported positive economic data for the first quarter, alleviating the immediate need for Beijing to introduce monetary stimulus to support economic recovery. Additionally, factors such as a weakening yuan, uncertainty surrounding the timing of the first Federal Reserve interest rate cut, and declining net interest margins at commercial lenders have limited the effectiveness of easing efforts.
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The first-quarter gross domestic product (GDP) growth surpassed the annual target of “about 5 percent,” leading market analysts and traders to anticipate an unchanged policy stance at the upcoming Politburo meeting.
One-year LPR at 3.45 percent, five-year LPR at 3.95 percent
In terms of figures, the one-year loan prime rate (LPR) remained at 3.45 percent, while the five-year LPR remained steady at 3.95 percent. A Reuters survey of 30 market watchers conducted last week indicated that all participants expected these rates to remain unchanged.
A prime rate, also known as a prime lending rate, refers to the interest rate banks typically charge customers with good credit when lending funds.
China’s economy expanded by 5.3 percent year-on-year in the first quarter, surpassing analysts’ expectations. This positive growth is encouraging for policymakers who are working to bolster demand and confidence in the midst of an extended property crisis.
Although Chinese banks extended 3.09 trillion yuan in new yuan loans in March, an increase from 1.45 trillion yuan in February, this fell short of analyst projections.
In the Chinese lending landscape, the one-year LPR primarily influences new and outstanding loans, while the five-year rate impacts mortgage pricing. In February, the five-year LPR was lowered by a significant 25 basis points to support the housing market.
Last week, China’s central bank maintained a key policy interest rate when rolling over maturing medium-term loans and withdrew some liquidity from the banking system through bond instruments. The medium-term lending facility (MLF) rate serves as a reference for the LPR, and market participants predominantly interpret changes in the MLF rate as potential indications of adjustments to the lending benchmarks.
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