The People’s Bank of China (PBOC) on Monday, March 21, said the benchmark lending rate is to be unchanged for the month, but a survey found that there are still hopes for more monetary stimulus.

Reuters said the one-year loan prime rate (LPR) lingered at 3.70% in March. The majority of new and outstanding loans in China are based on it.

The five-year loan prime rate, on which most lenders base their mortgage rates, continued to stay at 4.65%.

Both rates were lowered for the first time since 2020 last month as an effort by the PBOC to alleviate pressure on the property market and struggling small businesses.

Analysts believed that there might be room for more policy easing. The country’s economy is currently under threat from the resurgence of COVID-19 and geopolitical tensions from the Russia – Ukraine war.

Win Thin, a global head of currency strategy at Brown Brothers Harriman, said in a note that “We see another round of rate cuts coming in early Q2,” pointing to Beijing’s ambitious growth target of nearly 5.5% this year, a reason behind the prospect.

Last week, Chinese Vice Premier Liu He (刘鹤) promised that Beijing would pick up “substantial measures” to revive the first-quarter economic growth.

Experts believe the reserve requirement ratio (RRR) could be reduced among other measures, which would lower the interest rates in tandem. City Group analysts said, “There is no precedent of lowering LPR without a RRR or policy rate cut.”

Yet, lower interest rates might lead to capital outflows now as the U.S. and other large economies are tightening their monetary policy. The broadening policy disparity can potentially lower China’s present yield advantage over the U.S. and deter investors away.

The yield difference between China’s benchmark 10-year government bonds and the U.S. Treasury has narrowed to 65 basis points, the smallest in three years.

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