China’s central bank kept its key policy rates unchanged Monday as the nation’s banks started to lower deposit rates amid narrowing interest margins.
The People’s Bank of China said it kept the one-year medium-term lending facility rate unchanged at 2.75% while injecting 125.00 billion yuan ($17.96 billion) of liquidity via the MLF.
It also maintained the interest rate of the seven-day reverse repurchase agreement steady at 2.00% while injecting CNY2.00 billion via the instrument.
The hold on key policy rates came after some analysts anticipated a rate cut this month after Chinese banks were allowed to lower their deposit rates.
Some commercial banks said in their filings last week that they will cut interest rates of certain types of deposits on Monday, following a decision made by the government-backed interest-rate self-disciplinary mechanism.
China’s deposit rate reductions fell behind lending rate cuts, especially when Beijing asked the state-dominant banking sector to provide more support for the slowing economy during the pandemic years.
The deposit rate cut this time was seen as giving lenders leeway to stop the narrowing net interest margin, a key metric of banks’ profitability.
But still, some analysts anticipated lending rate cuts this year as recent economic data showed a patchy post-pandemic recovery.
China’s consumer inflation slowed to its weakest pace in more than two years last month, while producer prices fell further into deflation. Official gauges of manufacturing activity dropped into contraction territory in April, reflecting cooling domestic and external demand.