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China's central bank is not yet ready to lower benchmark interest rates to stimulate the slowdown in the economy, despite the slowdown in inflation and the strengthening of the yuan, which have fueled market expectations in this regard, political sources told Reuters.
But the People's Bank of China (PBOC) is likely to reduce market-based rates and further reduce bank reserve rates (RRRs) to boost credit growth and reduce borrowing costs of banks. according to the sources involved in the internal political discussions.
"We can not rule out a (reference) rate cut, but we still have to monitor the economic data for a few months," said one of the officials. "There is no reason to lower benchmark rates if we look at the huge number of new loans in January."
China's trading partners and major central banks are increasingly worried about the slowdown in the world's second-largest economy. Investors are wondering whether Beijing should accelerate or step up its support measures to reduce the risk of further downturn.
Analysts polled by Reuters expect China's official growth rate to drop to 6.3% in 2019, its lowest level in 29 years, and some believe that real activity is already much lower than government statistics suggest.
Chinese observers note that the PBOC has many policy tools before turning to less expensive instruments, such as lowering the lending rate, which would reduce financing costs but risk adding to a mountain of debt.
We are generally expecting more RRR cuts in the coming quarters, after five years in the last year, most recently in January. The PBOC also lowered money market rates in different ways and proposed a slightly higher rate on the new medium-term loan program launched in January.
The PBOC did not immediately respond to Reuters' request for comment.
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