Key facts
- China's benchmark lending rates are expected to remain unchanged for the 14th consecutive month in July.
- The one-year loan prime rate is expected to stay at 3.00% and the five-year rate at 3.50%.
- This decision comes despite China's Q2 GDP growth being the slowest in over three years and missing forecasts.
- Market participants anticipate that fiscal measures will be the primary policy response to economic weakness.
- Some analysts suggest a potential 10-basis-point rate cut by the PBOC in July.
China is anticipated to maintain its benchmark lending rates unchanged for a 14th consecutive month in July, according to a Reuters survey. This stability in the loan prime rate (LPR) is expected despite recent economic data indicating a slowdown, with second-quarter GDP growth being the slowest in over three years and falling short of forecasts.
The LPR, which influences borrowing costs for businesses and consumers, is typically set based on submissions from 20 designated commercial banks to the People's Bank of China (PBOC). All 23 market participants polled by Reuters predicted that both the one-year and five-year LPRs would remain at their current levels of 3.00% and 3.50%, respectively, at the upcoming review.
This market expectation for steady rates comes amid a noticeable divergence in China's economy, often described as K-shaped. Robust export growth has continued to drive recovery, while domestic economic activity, particularly household consumption, has remained sluggish. This uneven growth pattern has tempered expectations for significant monetary easing.
Analysts at Goldman Sachs noted that while the weaker Q2 GDP data might increase the likelihood of further monetary easing, rate and reserve requirement ratio cuts are not their baseline scenario for this year. They anticipate that the implementation of existing fiscal measures and the PBOC's maintenance of ample interbank liquidity will be the primary policy responses.
However, some analysts, such as those at Citi, foresee incremental policies to stimulate a mild rebound. They project a potential 10-basis-point rate cut from the PBOC as early as July, coupled with an acceleration in fiscal policy deployment. Attention is also turning towards the forthcoming Politburo meeting, where policymakers are expected to outline the economic agenda for the latter half of the year.