China keeps lending rates steady; trade war raises bets for stimulus

China kept benchmark lending rates steady on Monday (Apr 21) for the sixth successive month, matching market expectations.

Stronger-than-expected first-quarter economic growth data might have reduced the urgency for immediate monetary easing even as markets wager more stimulus is likely in coming months to keep growth on an even keel amid an intensifying Sino-US trade war.

Policymakers are also wary of a weakening Chinese yuan and shrinking interest margins at lenders, limiting the scope for easing.

The one-year loan prime rate (LPR) was kept at 3.1 per cent, while the five-year LPR was unchanged at 3.6 per cent.

In a Reuters poll of 31 market participants conducted last week, 27, or 87 per cent, expected no change to either of the rates.

China’s gross domestic product (GDP) grew 5.4 per cent in the first quarter, beating expectations, but markets fear a sharp downturn in the year ahead as US tariff policies pose the biggest risk to the Asian powerhouse in decades.

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Export data was yet to capture the impact of higher US tariffs as many factories front-loaded their orders to beat the duties, analysts said.

A string of global investment banks have lowered their projections for China’s economic growth this year and expected more monetary easing measures to underpin the economy.

Xing Zhaopeng, senior China strategist at ANZ, said the steady LPR fixings suggested that policymakers remain in a wait-and-see mode.

“The impact of tariffs is mainly on exports. Given the sound economic growth in the first quarter, it may be easier to introduce targeted measures for export companies,” Xing said.

“The LPR is not seen moving without a cut to the seven-day reverse repo rate first,” economists at ING said in a note.

“Low inflation and strong external headwinds amid escalating tariff threats provide a strong case for easing. But currency stabilisation considerations may prompt the People’s Bank of China to wait until the US Federal Reserve cuts borrowing costs.” REUTERS