China left benchmark loan prime rates (LPRs) unchanged for the seventh consecutive month in December on Monday, matching market expectations.
WHY IT’S IMPORTANT
The steady LPR fixings in December suggested that the authorities are not in a rush to deliver fresh monetary easing measures as the world’s second largest economy appears on track to hit Beijing’s growth target for the year.
Moreover, the central bank’s adoption of "cross-cyclical" policy adjustments, which aim to smooth out the impact of economic cycles, and record-low profit margins at lenders may give policymakers room to delay stimulus until next year, some market watchers said.
BY THE NUMBERS
The one-year LPR was kept at 3.00%, while the five-year LPR was unchanged at 3.50%.
In a Reuters survey of 25 market participants conducted last week, all participants predicted no change to either of the two rates.
CONTEXT
At this month’s the annual Central Economic Work Conference (CEWC), Chinese leaders pledgedto maintain a "proactive" fiscal policy next year that would stimulate both consumption and investment to maintain high economic growth, which analysts expect Beijing to target at roughly 5%.
China’s economy stalled in November, with factory output and retail sales growth slowing as a lingering property crisis hit consumer and business sentiment. New bank loans also rose less than expected, weighed down by a sharp slowdown in household borrowing.
The CEWC reiterated ’growth stabilisation and reasonable price increases as the main considerations for monetary policy’ ... adding the need to ’flexibly and efficiently’ use various policy tools such as reserve requirement ratio (RRR) and interest rate cuts.
"We continue to see a 10-basis-point cut in the policy rate, though with somewhat reduced probability, and a 50bp RRR cut in the first quarter of 2026 to facilitate the front-loading of government bond issuance."
Source : Investing.com