SHANGHAI, July 17 (Reuters) – China is set to leave benchmark lending rates unchanged for a 14th consecutive month in July, a Reuters survey showed, despite softer-than-expected second-quarter economic data highlighting uneven growth in the world’s second-largest economy.
The loan prime rate (LPR), normally charged to banks’ most creditworthy clients, is calculated each month after 20 designated commercial banks submit proposed rates to the People’s Bank of China (PBOC).
In a Reuters survey of 23 market participants conducted this week, all respondents predicted that at the next review on Monday, the one-year and five-year LPRs would remain steady at 3.00% and 3.50%, respectively.
The strong market expectation for steady LPR fixings comes amid a persistent K-shaped divergence in the broader economy, where robust export growth continues to lead the recovery while domestic activity remains sluggish.
China’s economy expanded at the slowest pace in more than three years in the second quarter, missing forecasts, with weak household consumption clouding strong manufacturing and exports and intensifying concerns over long-term sustainability.
However, traders and analysts do not view this two-speed growth pattern as sufficient to prompt broad-based monetary easing.
“In our view, the weaker-than-expected Q2 GDP data have increased somewhat the likelihood of further monetary easing, although rate and reserve requirement ratio (RRR) cuts this year are still not in our baseline,” Xinquan Chen, China economist at Goldman Sachs, said in a note.
“Faster implementation of existing fiscal measures remains the most likely policy response, with the PBOC maintaining ample interbank liquidity,” he added.
And many are now turning their focus to the upcoming Politburo meeting, where policymakers are expected to set the economic policy agenda for the second half of the year.
Still, some analysts project a mild interest rate reduction to aid the wider economy.
“We expect incremental policies to drive a mild rebound ahead, including a potential 10-basis-point rate cut from the PBOC as soon as this July and an acceleration in fiscal policy deployment,” Citi analysts said in a note.
(Reporting by Shanghai Newsroom; Editing by Kevin Buckland)
