Chinese banks held their benchmark lending rate steady for the 10th straight month, as pressure on the yuan limited policymakers' room to ease monetary policy.
The People's Bank of China kept its one-year lending rate at 3.45%, in line with most economists surveyed by Bloomberg, the bank said in a statement Thursday.
The five-year prime rate, a benchmark for longer-term loans including mortgages, was also kept at 3.95%.
The lending benchmark rate, or LPR, is based on the rates offered by 20 banks to their best clients. It is defined as the difference between the rate offered by those banks and the central bank’s one-year lending rate, or the multi-term lending facility rate, which the People’s Bank of China left unchanged for the 10th straight month earlier this week.
Pressure on the yuan
The central bank is keeping interest rates high, as cutting them would widen the monetary policy gap between China and the US Federal Reserve, which is expected to keep interest rates high for longer, adding pressure on the yuan.
However, weak demand for borrowing, and China's longest period of falling prices since the 1990s, make lower borrowing costs necessary to stimulate demand.
People's Bank of China Governor Pan Gongsheng on Wednesday sparked speculation about a possible cut in the benchmark lending rate in the coming months, when he said in a speech that some banks' interest rate quotes had deviated significantly from the best real lending rate they offer to customers.
Lenders may need to correct this by cutting their key lending rate by 10 to 20 basis points, likely in the second half of this year, economists at Societe Generale wrote in a note yesterday.
