China interest rate cuts face internal and external constraints, state media says

SHANGHAI (Reuters) - China still has room to lower interest rates, but its ability to adjust monetary policy faces internal and external constraints, the official Financial News said on Monday, citing industry experts.

The front-page article in Financial News, which is backed by the People's Bank of China (PBOC), was published just hours before the central bank is widely expected to leave a key policy rate unchanged when rolling over maturing medium-term loans, according to a Reuters poll.

Data on Friday showed new bank lending in China rebounded far less than expected in May and some key money gauges hit record lows, suggesting the world's second-largest economy is still struggling to regain its footing even as the central bank seeks to bolster confidence.

"Objectively speaking, further interest rate cuts face 'double constraints' both internally and externally," the newspaper said.

"Internally, commercial banks' net interest margins continue to narrow. Externally, the yuan exchange rate is also a factor that needs to be considered."

The Financial News, citing market experts, added credit lending growth was affected by factors including a high base effect and some short-term disturbance factors, but the pace had become more balanced.

"The pace of recent corporate and government bond issuance has accelerated to provide stable support for the growth of social financing," the newspaper said.

"It reflects that fiscal policies are being rolled out at a faster pace and the structure of social financing is constantly being optimised."

China's finance ministry started selling 1 trillion yuan ($137.82 billion) in long-awaited, long-term special treasury bonds in May to raise funds it will use to stimulate key sectors of the flagging economy.

($1 = 7.2557 Chinese yuan)

(Reporting by Shanghai Newsroom; Editing by Jamie Freed)