China cut its one-year benchmark lending rate on Monday, as expected, as authorities seek to ramp up efforts to stimulate credit demand, but surprised markets by keeping the five-year rate unchanged.
The recovery in the world's second-largest economy has faltered due to a worsening property slump, weak consumer spending and tumbling credit growth, which warranted further policy stimulus.
China's central bank has also pledged to keep liquidity reasonably ample and its policy "precise and forceful" to support the economic recovery, amid rising headwinds, according to its second-quarter monetary policy implementationBut the steady five-year tenor caught many traders and analysts off the guard, with some expecting the troubled property sector and rising default risks at some developers would have led to deeper cuts to the benchmarks.
"It flagged a problem on the effectiveness of PBOC's policy guidance pass-through into the market, and the Chinese authorities may be lacking effective tools to stimulate the property sector and economy via monetary easing."
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