Investing.com -- The People’s Bank of China held its benchmark lending rate steady on Thursday as expected, although focus remained on any future cuts as an economic recovery in the country runs out of steam.
The PBOC held its one-year loan prime rate (LPR) at 3.55%, while the five-year LPR, which is used to determine mortgage rates, was steady at 4.20%.
The move was largely expected by markets, given that the PBOC had kept medium and short-term lending rates steady earlier in the week.
But it also follows a cut in the PBOC’s key lending rates in June, where the bank had trimmed rates for the first time in 10 months as a Chinese economic recovery ran dry.
The LPR is decided by the central bank based on considerations taken from 18 designated commercial banks, and is used as a benchmark for borrowing conditions in the country. The one-year LPR was trending near record lows, following a string of cuts over the past three years.
The PBOC is widely expected to further trim the LPR this year, as it moves to shore up a slowing economic recovery in the country. Local media reports also suggested that a cut in the PBOC’s reserve requirement ratio - which dictates how much of a bank’s deposits are to be kept as reserves - was likely in the third quarter.
Data released earlier this week showed that Chinese GDP slowed substantially in the second quarter, as growth failed to pick up despite supportive measures by the government.
Weakness in the manufacturing and real estate sectors - which were once the country’s biggest economic drivers - has been a major headwind for the Chinese economy. Manufacturing is struggling amid weak global demand for Chinese goods, while weak sales and a cash crunch have plagued Chinese property developers for over three years.
This trend has persisted even after the country relaxed most anti-COVID measures at the beginning of 2023, which was initially expected to boost economic growth.
But sluggish domestic spending has now put China on the cusp of disinflation, which analysts warn could be difficult for the economy to recover from. But government officials shot down speculation over disinflation, and vowed to roll out more supportive policies in the coming months.