SHANGHAI, Dec 20 Reuters China left its benchmark lending rates unchanged as expected at the monthly fixing on Friday.

WHY IT39;S IMPORTANT

Persistent deflationary pressure and tepid credit demand call for more stimulus to aid the broad economy, but narrowing interest margin on the back of fast falling yields and a weakening yuan limit the scope for immediate monetary easing.

BY THE NUMBERS

The oneyear loan prime rate LPR was kept at 3.10, while the fiveyear LPR was unchanged at 3.60.

In a Reuters poll of 27 market participants conducted this week, all respondents expected both rates to stay unchanged.

CONTEXT

China39;s central bank urged financial institutions to guard against interest rate risks when trading in bonds, signalling discomfort among policymakers over recent frenzied buying that has helped drive yields sharply lower.

The Politburo said earlier this month that China will adopt an appropriately loose monetary policy next year, the first easing of its stance in some 14 years, alongside a more proactive fiscal policy to spur economic growth.

Widening yield spreads against the United States pressured the yuan to the weakest in more than a year. The gap between China39;s benchmark 10year government bonds and their U.S. counterpart widened to the largest in 22 years.

China has room to further cut the reserve requirement ratio, with the average RRR now at 6.6, a central bank official recently said.

KEY QUOTES

TOMMY XIE, HEAD OF GREATER CHINA RESEARCH AT…