(Yicai) April 21 -- China’s central bank has kept its benchmark lending rates unchanged for the sixth straight month, following positive economic data so far this year.

The People’s Bank of China kept the one-year and over five-year loan prime rates at 3.1 percent and 3.6 percent, respectively, today.

Historically low net interest margins -- the difference between the amount of money a bank earns on loans and the amount it pays on deposits -- and stronger-than-expected economic data in the first three months of the year were the main reasons why the PBOC did not cut the LPR, according to analysts.

But the central bank may cut the reserve requirement ratio -- the percentage of deposits banks must hold in reserve as cash -- and interest rates this quarter, they added.

The PBOC conducted a CNY245.5 billion (USD33.6 billion) seven-day reverse repo operation on April 17, keeping the rate at 1.5 percent. As a key benchmark for LPR pricing, the stable policy rate signaled little room for an LPR cut this month, said Ming Ming, chief economist at Citic Securities. 

The LPR has been unchanged since being cut last October and reverse repo rates have also been held steady, reflecting a cautious use of broad monetary easing tools, Ming noted.

China’s first-quarter economic data was a key reason for this wait-and-see approach on monetary policy. The economy grew 5.4 percent on an annual basis and 1.2 percent on a quarterly basis, showing a clear recovery. 

According to Dong Ximiao, chief researcher at Zhonglian Research Institute, since corporate and mortgage loan rates are already at historic lows, there is little short-term necessity to cut the LPR further, so a cut in the RRR is seen as a more likely near-term move, Dong said.

Despite limited short-term LPR flexibility, the markets are expecting mid-to-long-term easing. This quarter offers a ripe window for RRR and rate cuts, potentially as early as this month, with the scale similar to last year’s reductions, said Wang Qing, chief macro analyst at Golden Credit Rating. This would likely guide corporate and household lending rates lower and further reduce financing costs to the real economy, he said.

Weak household credit demand persists. Household loans last quarter accounted for just 10.6 percent of total Chinese yuan-denominated loan growth, reflecting subdued consumption and property market sentiment. China should boost domestic demand by stabilizing employment, improving the social security system, and bolstering real estate support, Dong suggested. In this context, an RRR cut could serve as a flexible instrument to inject long-term liquidity, ease banking sector pressures, and signal policy stability, he said.

External dynamics are also influencing the pace of policy moves. The offshore yuan briefly breached 7.4 per dollar in early April, and while it has since strengthened to around 7.3, protracted foreign exchange pressures may persist due to the long-term effects of the US tariff hikes.

Ming said short-term policy will likely focus on managing expectations while retaining leeway for future shocks. If the US Federal Reserve resumes rate cuts later this year, the PBOC may follow with its own easing.

Editor: Tom Litting