China Likely to Hold Lending Rates Steady Amid Trade Truce and Recent Easing Measures

China is expected to keep its key lending rates unchanged during its upcoming monthly review, following significant monetary easing measures in May. According to a Reuters survey of 20 analysts, both the one-year and five-year Loan Prime Rates (LPR) are likely to remain steady. This comes as recent efforts, including lower LPRs and deposit rates by major banks, aimed to support the struggling economy amid ongoing trade tensions with the United States.

The improved trade outlook, highlighted by a framework agreement between Washington and Beijing on tariffs, has fueled hopes for a rebound in business activity. This development reduces immediate pressure on Chinese policymakers to introduce further easing measures. The LPR, which is derived from proposals submitted by 20 key commercial banks to the People’s Bank of China (PBOC), serves as the benchmark for most loans, especially in corporate and mortgage markets.

Market experts noted that the LPR is now closely tied to the seven-day reverse repo rate, a primary tool used by the central bank to signal monetary policy direction. Any changes to this short-term rate are expected to precede shifts in the LPR, suggesting a wait-and-see approach by the PBOC as it assesses the effectiveness of previous stimulus efforts.

Despite recent easing, China’s economy continues to show signs of weakness, including sluggish credit growth and growing deflationary pressures. These indicators point to the possibility of additional monetary support later in the year. UOB economist Ho Woei Chen noted that while stimulus is still necessary, the focus remains on solidifying a trade deal with the U.S. to ensure near-term economic stability.

Looking ahead, analysts expect the PBOC may cut the seven-day reverse repo rate by 10 basis points in the fourth quarter, which would likely result in a corresponding reduction in the LPR. Additionally, a further 50-basis-point cut to the reserve requirement ratio (RRR) is still considered a possibility, as authorities continue efforts to bolster growth amid uncertain global economic conditions.

Source: Reuters