China’s central bank held its benchmark lending rate steady on Wednesday, showing a preference for targeted support of Omicron-hit industries and the use of fiscal tools to shore up slowing economic growth. The one-year loan prime rate (LPR), which is calculated on quotes from more than a dozen state-owned and foreign funded banks, was left unchanged at 3.7 per cent by the People’s Bank of China (PBOC). The five-year LPR, which is the reference rate for mortgages, was kept at 4.6 per cent. China’s central bank has been under pressure to enact more monetary loosening, as the country is facing multiple headwinds, including weak consumption; disruptions to production and supply chains that have been amplified by Beijing’s zero-Covid strategy; capital outflows triggered by the US Federal Reserve’s rate hike; and rising commodity prices due to war in Ukraine. For now, policymakers are mostly relying on targeted measures to help support firms hit by the latest virus wave Julian Evans-Pritchard The central bank cut two major policy rates – the seven-day reverse repo and one-year medium-term lending facility – by 10 basis points in mid-January. The PBOC announced last week a 0.25 percentage point cut to its reserve requirement ratio , or the amount of cash that banks must hold in reserve, which will inject 530 billion yuan (US$83.2 billion) of liquidity into the market. “The PBOC’s focus appears to be elsewhere,” said Julian Evans-Pritchard, a senior China economist of Capital Economics. “For now, policymakers are mostly relying on targeted measures to help support firms hit by the latest virus wave.” Despite stronger-than-expected economic growth of 4.8 per cent in the first quarter , economists see more downward pressure over the next three months, as China’s hardline containment measures, including a lockdown in Shanghai, drag on. 5 defining moments for the Chinese economy over the past 25 years The International Monetary Fund on Tuesday lowered its 2022 growth forecast for China to 4.4 per cent from 4.8 per cent, saying more transmissible coronavirus variants and the strict zero-Covid policy could continue to hamper economic activity. Consumption is a major casualty of travel bans and social distancing measures in China. Social retail sales in March plunged 3.5 per cent, while the surveyed national jobless rate hit a 22-month high of 5.8 per cent last month. Still, policymakers have shown no intention of retreating from the full-year growth target of “around 5.5 per cent” . On Friday, the central bank held off making a cut to the medium-term funding rate for financial institutions, keeping it at 2.85 per cent. Evans-Pritchard said such a restrained response to the current downturn suggests large-scale stimulus is not on the cards. At a symposium with 18 major commercial banks and five asset management companies on Tuesday, the central bank and the banking regulator asked them to prioritise lending for contact-intensive sectors, small and micro market entities, cargo transport, investment and consumption – all of which face immediate threat from the pandemic. Financing for homebuyers and developers is also being loosened, as Beijing counts on investment to shore up economic growth. “The policy incentives should be released as early as possible,” the PBOC said in an online statement. Most of the [relief] measures are window guidance to banks Iris Pang Authorities have rolled over 400 billion yuan of relending quota for small businesses, 200 billion yuan for technological innovation and 100 billion yuan for logistics. “Most of the [relief] measures are window guidance to banks,” Iris Pang, chief Greater China economist of ING Bank, wrote in a note. “The PBOC’s action is quite small compared to what it expects the banks to do to help those affected by the lockdown.” Monetary policy is unlikely to be the main relief measure and more fiscal support is expected, Pang said. “This includes faster issuance of local government special bonds to fund infrastructure investments, which should provide some job opportunities for the construction industry as well as GDP growth support,” she said.