SHANGHAI (Reuters)

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

WHY IT’S IMPORTANT

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 stable amid an intensifying Sino-U.S. trade war.
Policymakers are also wary of a weakening Chinese yuan and shrinking interest margins at lenders, limiting the scope for easing.

BY THE NUMBERS

The one-year loan prime rate (LPR) was kept at 3.1%, while the five-year LPR was unchanged at 3.6%.
In a Reuters poll of 31 market participants conducted last week, 27, or 87%, expected no change to either of the rates.

CONTEXT

China’s gross domestic product (GDP) grew 5.4% in the first quarter, beating expectations. However, markets fear a sharp downturn in the year ahead as U.S. tariff policies pose significant risks to the Asian powerhouse.
Export data had yet to reflect the impact of higher U.S. tariffs, as many factories had front-loaded their orders to avoid the duties. Analysts noted that a string of global investment banks have lowered their projections for China’s economic growth this year, anticipating additional monetary easing measures to support the economy.

KEY QUOTES

Xing Zhaopeng, senior China strategist at ANZ, remarked that 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 stated.
Economists at ING noted, “The LPR is not seen moving without a cut to the seven-day reverse repo rate first.
Low inflation and strong external headwinds amid escalating tariff threats provide a strong case for easing. However, currency stabilization considerations might prompt the People’s Bank of China to wait until the U.S. Federal Reserve cuts borrowing costs.”