SHANGHAI, April 8 (Reuters) – Major global investment banks now expect China to keep official interest rates steady this year, scaling back earlier rate-cut calls, as the impact from the Middle East conflict appears limited, even as Beijing maintains a loose policy stance.
The receding rate cut expectations also come as China holds up better than its regional peers amid the Iran war, while the broader economy has shown early signs of a rebound.
“Against the backdrop of China’s relative resilience amid Hormuz disruptions, better-than-expected activity data in January-February, and the producer price index (PPI) likely turning positive in March, we see no clear catalyst for a policy rate cut in 2026,” Xinquan Chen, China economist at Goldman Sachs, said in a note.
“We therefore remove our call for a 10-basis-point (bps) rate cut in the third quarter from our baseline,” he said, while maintaining expectations for a 50 bps reduction in cash that banks must set aside as reserves.
While many other countries are grappling with higher inflation risks, China has faced deflationary pressure, giving it some leeway to counter inflation concerns stoked by rising oil prices. And, China is largely insulated from the energy supply shock because it has higher oil and gas reserves.
“Middle East conflicts certainly had an impact on China, but it will be smaller than on other countries,” said Shuang Ding, head of Greater China and North Asia economic research at Standard Chartered.
“China has effectively ruled out the possibility of interest rate cuts (for now), and there is no need for interest rate hikes in the short term.”
Late on Tuesday, the United States and Iran agreed to a two-week ceasefire.
China’s domestic policy response has been relatively restrained since the outbreak of the Iran war, aside from adjustments to retail gasoline and diesel prices, market watchers said.
Meanwhile, China’s central bank has said it will maintain an “appropriately loose” monetary stance this year, deploying tools including reserve requirement cuts and interest rates to keep liquidity ample.
The banking system has shown sign of abundant liquidity since the start of the month, with the trade weighted overnight repo hovering at near three-year lows and the seven-day repo falling below the main policy rate.
“As the growth momentum is within the policy target, we no longer expect policy rate cuts in both 2026 and 2027,” analysts at ANZ said in a note.
(Reporting by Shanghai and Beijing Newsroom; Editing by Kim Coghill)
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