China keeps benchmark lending rates unchanged for 16th month in September

SHANGHAI: China kept its benchmark lending rates unchanged for the 16th straight month on Sunday, in line with market expectations.

WHY IT'S IMPORTANT

The steady loan prime rates underscored the limited scope for fresh monetary easing after some major global central banks recently adopted a more hawkish stance, even as the yuan continued to strengthen.

BY THE NUMBERS

The one-year LPR was kept at 3.00 per cent, while the five-year LPR was unchanged at 3.50 per cent.

All 21 market participants in a Reuters survey forecast no change to either rate.

CONTEXT

The Federal Reserve raised interest rates last week and flagged more hikes in the coming months, with new US central bank chief Kevin Warsh joining a unanimous decision that effectively acknowledges the Trump administration's inability so far to control inflation that policymakers worry could worsen.

The yield premium on benchmark 10-year US Treasuries over Chinese government bonds hovered near the highest level on record after the Fed rate hike.

China's slower loan growth is becoming the new normal as shrinking property and local government sectors sap credit demand faster than emerging industries can fill the gap, central bank Governor Pan Gongsheng said.

KEY QUOTES

Serena Zhou, senior China strategist, Mizuho Securities

"Unless domestic demand weakens a lot more materially, the likelihood of broad-based monetary easing in Q4 has diminished in our view, particularly against the backdrop of a more hawkish US Federal Reserve."

Jacqueline Rong, chief China economist, BNP Paribas

"On monetary policy, we believe that China is in the late stage of its rate-cutting cycle. Our base case remains that the People's Bank of China will stay on hold for the rest of this year, constrained by tight net interest margins of banks and a transition from deflation to mild inflation. The risk to our view is tilted to a cut if economic growth disappoints."