SHA:601688

China Keeps Benchmark Lending Rates Steady as Expected in May

The People's Bank of China (PBOC) maintained its benchmark lending rates for the 12th consecutive month on Wednesday, matching market forecasts.The central bank kept the one-year loan prime rate (LPR) -- the benchmark for most corporate and household loans -- at 3.00% and the five-year LPR at 3.50%. The five-year LPR is the reference rate for property mortgages.The decision aligned with a unanimous consensus among market participants polled by Reuters. Analysts widely expected the hold as policymakers balance cooling domestic demand against rising factory-gate inflation.Data from the National Bureau of Statistics last week showed that April consumer prices rose 1.2% year-on-year, while the producer price index increased 2.8%, a 45-month high, driven by commodity cost pressures tied to conflicts in the Middle East."Luckily for China, this rising inflation backdrop stems from a near-deflationary environment over the past few years. Thus, the People's Bank of China doesn't face the rate hike pressure that many global central banks are now facing," Lynn Song, ING's chief economist for Greater China, said in a May 15 note.Despite a slowdown in China's economic indicators in April, Beijing continues to hold off on rolling out new stimulus.Retail sales rose 0.2%, the lowest since December 2022, while industrial output jumped 4.1%, lower than the previous month's 5.7%."The monetary policy tone suggests that rate cuts are conditional. With liquidity still ample, it looks increasingly likely that any potential easing won't take place until the second half of the year," Song said in a separate note.Geopolitical factors continue to influence market expectations. While Beijing refrained from introducing major economic stimulus following its late-April Politburo meeting, a recent high-stakes summit between U.S. President Donald Trump and Chinese President Xi Jinping yielded modest trade developments including commitments for U.S. agricultural purchases and the renewal of export licenses for U.S. beef enterprises.Economists from TD Securities and Huatai Securities (HKG:6886, SHA:601688) expect Beijing to prioritize targeted, sector-specific intervention over broad monetary easing, Reuters reported."We foresee the PBOC being more hesitant to cut rates to stimulate growth after the surge in producer prices, which may reflect a more worrying inflation backdrop," analysts from TD Securities were quoted by The Standard (Hong Kong) as saying.Huatai said the central bank's decision to retain rates signal "that the case for broad-based ​easing has weakened," The Standard reported.