China holds benchmark lending rates for 4th consecutive month

SHANGHAI (Reuters) – China kept benchmark lending interest rates unchanged for the fourth consecutive month on Tuesday, matching the forecasts of most market watchers who nevertheless expect further monetary easing to prop up a slowing economy.

FILE PHOTO: Paramilitary police officers stand guard in front of the headquarters of the People’s Bank of China, the central bank (PBOC), in Beijing, China September 30, 2022. REUTERS/Tingshu Wang

The one-year loan prime rate (LPR) was left at 3.65%, while the five-year LPR was held at 4.30%.

The People’s Bank of China (PBOC) last week increased cash injections into the banking system and said it would keep its one-year medium-term lending facility rate (MLF) unchanged for a fourth month. Market watchers regard MLF announcements as guides to any LPR changes.

GRAPHIC: China lending rates unchanged (here)

In a subsequent Reuters poll, 17 of 27 market watchers predicted no change to either LPR but said more easing measures were likely already underway after senior leaders last week vowed to focus on stabilising the $17 trillion economy in 2023 and step up policy adjustment to ensure targets are hit.

“The PBOC will probably guide LPRs lower in the coming months, especially the five-year LPR to support real estate and longer-term business loans,” Commerzbank economists said in a client note.

A number of officials in recent weeks have pledged to ensure sufficient financial market liquidity and implement proactive fiscal policies to underpin the economy next year.

Xing Zhaopeng, senior China strategist at ANZ, said with rates unchanged, household spending would continue without any increase in disposable income.

“When households reduce balance sheets significantly, it becomes hard to stimulate consumption, and that contradicts guidelines from the Central Economic Work Conference to prioritise consumption,” Xing said, referring to a meeting of policymakers last week to chart the economy’s course in 2023.

Not cutting the LPRs was “a bit of a surprise” and markets will now pay attention to any other policy measures, Xing said.

LPRs, which banks normally charge their best clients, are set by 18 designated commercial banks who submit proposed rates to the central bank every month.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages. China last cut both in August to boost the economy.

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