China yesterday kept a benchmark lending rate unchanged, defying expectations for a reduction with the economy jolted by the COVID-19 pandemic, although policymakers would likely need to loosen lending rates soon to free up funds.
The one-year loan prime rate (LPR) was left unchanged at 4.05 percent from the previous monthly fixing, while the five-year LPR remained at 4.75 percent.
The surprise helped prop up the yuan against the US dollar, following heavy selling this week, as the interest rate gap between China and the US remained wide, following the US Federal Reserve’s surprise policy easing last weekend.
A majority of traders and analysts in a Reuters poll had expected the rate, which is used to price new loans, to come down given the massive coordinated stimulus unleashed by global central banks this week.
It did not suggest that authorities are broadly comfortable with the current policy settings for now, analysts said, after the central bank last week cut the amount of reserves commercial banks are required to hold.
However, many see the need for more policy easing soon as economic risks grow.
“The lack of any cut this month means that the LPR is still only 10 basis points lower than it was at the end of last year, following a small cut in February,” Capital Economics senior China economist Julian Evans-Pritchard said in a note.
“But with the economy unlikely to get back on track until next year, further monetary easing will be needed to help address the continued strain on corporate and households balance sheets,” he said.
The virus crisis has gradually stabilized in mainland China with no new domestic transmissions reported on Thursday for the first time, raising hopes that strict containment efforts to stop the spread of the virus are working.
However, the situation overseas remains concerning.
Major global investment banks and institutions downgraded their forecasts for the Chinese economy. Goldman Sachs cut its estimate for first quarter GDP to a year-on-year contraction of 9 percent from a previous forecast of 2.5 percent growth.
The LPR is a lending reference rate set monthly by 18 banks. The People’s Bank of China (PBOC) revamped the mechanism to price LPR in August last year, loosely pegging it to the medium-term lending facility rate (MLF).
The central bank left borrowing cost on its one-year MLF loans unchanged on Monday, which would ordinarily suggest the LPR would similarly remain unchanged.
However, investors and economists saw the wave of global rate cuts and liquidity measures this week as adding pressure for China to do likewise, which is why many had expected an LPR cut.
BNP Paribas senior China economist Jacqueline Rong said that while banks face pressure from authorities to provide credit to struggling businesses, they are unlikely to lower rates unless properly incentivized.
“Commercial banks already face higher pressure to lower borrowing costs for virus-hit firms and support smaller business this year,” she said. “Actively lowering LPR would inevitably give themselves more burden.”
That suggests the PBOC would need to cut the MLF soon to allow banks to lower their lending rates accordingly.
“We expect the central bank could lower MLF rate by 10 basis points in April,” Founder Securities chief economist Yan Se said. “And if fluctuations in the stock market pick up further, we can’t rule out chances for a reverse repo rate cut.”
Taiwan Transport and Storage Corp (TTS, 台灣通運倉儲) yesterday unveiled its first electric tractor unit — manufactured by Volvo Trucks — in a ceremony in Taipei, and said the unit would soon be used to transport cement produced by Taiwan Cement Corp (TCC, 台灣水泥). Both TTS and TCC belong to TCC International Holdings Ltd (台泥國際集團). With the electric tractor unit, the Taipei-based cement firm would become the first in Taiwan to use electric vehicles to transport construction materials. TTS chairman Koo Kung-yi (辜公怡), Volvo Trucks vice president of sales and marketing Johan Selven, TCC president Roman Cheng (程耀輝) and Taikoo Motors Group
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
RECORD-BREAKING: TSMC’s net profit last quarter beat market expectations by expanding 8.9% and it was the best first-quarter profit in the chipmaker’s history Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which counts Nvidia Corp as a key customer, yesterday said that artificial intelligence (AI) server chip revenue is set to more than double this year from last year amid rising demand. The chipmaker expects the growth momentum to continue in the next five years with an annual compound growth rate of 50 percent, TSMC chief executive officer C.C. Wei (魏哲家) told investors yesterday. By 2028, AI chips’ contribution to revenue would climb to about 20 percent from a percentage in the low teens, Wei said. “Almost all the AI innovators are working with TSMC to address the
FUTURE PLANS: Although the electric vehicle market is getting more competitive, Hon Hai would stick to its goal of seizing a 5 percent share globally, Young Liu said Hon Hai Precision Industry Co (鴻海精密), a major iPhone assembler and supplier of artificial intelligence (AI) servers powered by Nvidia Corp’s chips, yesterday said it has introduced a rotating chief executive structure as part of the company’s efforts to cultivate future leaders and to enhance corporate governance. The 50-year-old contract electronics maker reported sizable revenue of NT$6.16 trillion (US$189.67 billion) last year. Hon Hai, also known as Foxconn Technology Group (富士康科技集團), has been under the control of one man almost since its inception. A rotating CEO system is a rarity among Taiwanese businesses. Hon Hai has given leaders of the company’s six