SHANGHAI (Reuters) – China still has room to cut interest rates, but its ability to adjust monetary policy faces internal and external constraints, the official Financial News newspaper said on Monday, citing industry experts.
The article appeared on the front page of Financial News, a magazine backed by the People’s Bank of China (PBOC), just hours before the central bank was widely expected to leave its key interest rate unchanged when renewing maturing medium-term loans, according to a Reuters poll.
Data on Friday showed that new bank lending in China rebounded much less than expected in May, and some key monetary measures hit record levels, suggesting that the world’s second-largest economy is still struggling to regain its footing even as the central bank seeks to boost confidence.
“Objectively, further cuts in interest rates face double restrictions, internally and externally,” the newspaper said.
“Internally, commercial banks’ net interest margins continue to narrow. Externally, the yuan exchange rate is also a factor to take into account.”
The Financial News newspaper, citing market experts, added that the growth of credit lending was affected by factors including the high base effect and some short-term disruption factors, but the pace has become more balanced.
“The pace of corporate and government bond issuance has accelerated recently to provide stable support for the growth of social finance,” the newspaper said.
“It reflects that fiscal policies are being implemented at a faster pace and the social financing structure is constantly improving.”
China’s Finance Ministry began selling 1 trillion yuan ($137.82 billion) worth of long-term special treasury bonds in May to raise money it will use to stimulate key sectors of the faltering economy.
($1 = 7.2557)