China seen holding loan rates steady in August despite economic weakness

SHANGHAI: Anticipated by markets, China may maintain its benchmark lending rates at 3.00% and 3.5% in August, according to a Reuters survey, despite recent economic indicators signaling signs of slowdown across the nation's broader economy. The prime lending rate (LPR), the rate banks charge their most creditworthy customers, is set monthly following proposals from 20 selected commercial banks to the People's Bank of China (PBOC).

In a Reuters survey of 25 industry experts, all respondents forecast that the LPR for one-year and five-year durations would stay unchanged at the upcoming review on Thursday. The expectation of steady LPR rates persists despite a series of July data pointing to weak domestic demand in China, the world's second-largest economy. Analysts suggest policymakers are more inclined to rely on swift fiscal implementation in the near term to bolster growth instead of pursuing additional monetary easing.

Citi analysts emphasized that focus should remain on fiscal policies with little indication of an outright LPR cut from the PBOC this month. China's leaders committed at a July Politburo meeting to bolster the slowing economy by accelerating fiscal spending on already-budgeted infrastructure projects for the rest of the year, rather than unveiling major new stimulus measures.

The central bank signaled last week that it would maintain an appropriately loose monetary stance and deploy practical, effective measures as necessary, but refrained from signaling explicit cuts to policy rates or commercial banks' reserve requirement ratio. Commercial banks' net interest margin (NIM), a key indicator of the sector's health, rose by 0.01 percentage point to 1.41% in the second quarter from end-March, marking the first quarterly increase since 2022, though it remained near a record low.