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WHY
IT'S IMPORTANT
The steady monthly LPR fixings met market expectations, as
shrinking interest margins at lenders hampered continued easing
efforts after China lowered a string of key interest rates a
month earlier.
BY THE NUMBERS
The one-year loan prime rate (LPR) was kept at 3.35%, while the
five-year LPR was unchanged at 3.85%.
In a Reuters survey of 37 market participants conducted this
week, all respondents expected both rates to stay unchanged.
CONTEXT
Most new and outstanding loans in China are based on the
one-year LPR, while the five-year rate influences the pricing of
mortgages.
China surprised markets by cutting major short- and long-term
interest rates in July, its first such broad move in almost a
year, signalling policymakers' intent to strengthen economic
growth.
The sequence of the rate cuts also showed the PBOC's monetary
framework had changed, shifting the short-term rate to being the
main signal guiding markets, traders and analysts said.
China's bank lending tumbled more than expected last month,
hitting the lowest in nearly 15 years, dragged down by tepid
credit demand and seasonal factors and raising expectations that
the central bank may deliver more easing steps.
KEY QUOTES
Economists at Goldman Sachs: "The expansionary fiscal policy,
along with other support including continued monetary policy
easing, is needed to stem further weakening in domestic demand
and to ensure real GDP growth stays close to 5% year-on-year in
the second half of this year. We believe the growth target is
important to the authorities and recent policy communications
have indicated so."
They expect one 25-basis-point reserve requirement ratio (RRR)
cut in the third quarter, followed by another 10-basis-point
policy rate cut in the fourth quarter of this year.
(Reporting by Winni Zhou in Shanghai and Tom Westbrook in
Singapore; Editing by Jacqueline Wong & Shri Navaratnam)
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