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FX.co ★ China Keeps Loan Prime Rates Unchanged

China Keeps Loan Prime Rates Unchanged

China kept its benchmark loan prime rates unchanged for the seventh consecutive month, as widely expected, on Friday.

The one-year loan prime rate was retained at 3.85 percent and the five-year loan prime rate was maintained at 4.65 percent.

The one-year and five-year loan prime rates were last reduced in April. The one-year loan prime rate was lowered by 20 basis points and five-year rate by 10 basis points in April.

The loan prime rate is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. This new lending rate replaced the central bank's traditional benchmark lending rate in August 2019.

As the PBoC had not adjusted the rate on its medium-term lending facility early this month, commercial banks were widely expected to retain the LPR today.

Given that the economy is now back on track and fiscal policy is set to remain supportive until at least the start of next year, the PBoC is shifting its focus away from supporting growth back towards addressing financial risks and moral hazard, Julian Evans-Pritchard and Sheana Yue, economists at Capital Economics, said.

And while the PBoC will probably want to start increasing the LPR at some point, recent comments by the vice governor suggest that it is no rush to do so, economists noted.

The economists expect PBoC policy rates to rise by 30 basis points in 2021.

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