China holds benchmark lending rates steady as expected

China held benchmark lending rates steady for the fifth straight month in March on Thursday, matching market expectations.

WHY IT'S IMPORTANT
Early signs of the economic recovery gaining some momentum and persistently narrowing profit margins for lenders have reduced the urgency for more easing measures, despite the central bank's shift to an "appropriately loose" monetary policy stance this year.


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 33 market participants conducted this week, 29, or 88% of them expected no changes to either of the two rates.

CONTEXT
A string of recent economic data, including manufacturing activity, industrial output and retail sales, provided encouraging signs for the economy's continued recovery. Beijing also rolled out more stimulus measures this week to boost domestic consumption.

The People's Bank of China (PBOC) said last week that it would cut interest rates and banks' reserve requirement ratio at the appropriate time and keep liquidity ample.

A fragile yuan, pressured by wide yield differentials with the United States, is considered by markets as a key constraint limiting Beijing's monetary easing efforts.

The yuan, however, has managed to eke out modest gains against the dollar so far this year, underpinned by a broadly weakening greenback as U.S. President Donald Trump's ramped-up tariffs against trading partners fan fears of a sharp economic downturn.

KEY QUOTES
** Analysts at Commerzbank: "More monetary easing, such as interest rates or RRR cuts, could be expected this year. But the PBOC is waiting for the right window to do so, likely when there is less depreciation pressure on the yuan."

** Wang Qing, chief macro analyst at Golden Credit Rating, says the main reason for steady LPRs is that consumption and investments have picked up pace.

"The impact of the trade war is not yet obvious, and the necessity and urgency of lowering interest rates are not high," Wang said.