Global economy is going through a turmoil, and China is one of the leading economies any small change here has a global impact. As anticipated by the market had China had left lending rates unchanged at a monthly fixing on Tuesday in order to strengthen its economy.
Market response To China lowering of interest rates:Â
The steady monthly LPR fixings met market expectations, as shrinking interest margins at lenders hampered continued easing efforts after China lowered on a string of key interest rates a month earlier.
Expert Speaks on the impact of rate cut on the Chinese economy:Â Â
The one-year loan prime rate (LPR) and the five-year LPR remained unchanged at 3.35% and 3.85% respectively. According to the survey conducted the respondents expected that the rates will remain unchanged.
Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.
Speaking exclusively on this subject was an economists from Goldman Sachs who enthused, “The expansionary fiscal policy, along with other support including continued monetary policy easing, is needed to stem further weakening in domestic demand and to ensure real GDP growth stays close to 5% year-on-year in the second half of this year. We believe the growth target is important to the authorities and recent policy communications have indicated so.”
They expect one 25-basis-point reserve requirement ratio (RRR) cut in the third quarter, followed by another 10-basis-point policy rate cut in the fourth quarter of this year.
In a major surprise for the markets in July China had cut interest on both major short- and long-term loans which signaled policymakers’ intent to strengthen economic growth.
