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China Holds Key Lending Rates as Economy Appears to Steady

Recent data suggests the Chinese economy is finding its footing after a sharp slowdown, while yuan declines have reduced the need for authorities to chop interest rates to prop up growth

The People's Bank of China kept the one-year loan prime rate (LPR) at 3.45%, while the five-year LPR was unchanged at 4.2%.
The People's Bank of China has a relatively large policy space to lower the reserve requirement ratio, a former central banker said on Sunday. File photo: Reuters.


China’s central bank kept key lending rates unchanged at a monthly fixing on Wednesday, as most analysts had forecast.

That outcome was in line with expectations because of signs the economy may be starting to stabilize, while the currency’s weakening reduced the need for monetary easing.

Recent economic data suggest the world’s second-largest economy is slowly finding its footing after a sharp slowdown, while yuan declines have reduced the urgency for authorities to aggressively lower interest rates to prop up growth.

The one-year loan prime rate (LPR) was kept at 3.45%, while the five-year LPR was unchanged at 4.20%.


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Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.

In a Reuters survey of 29 market analysts and traders, all participants predicted no change to the one-year LPR, while a vast majority of them also expected the five-year rate to remain steady.

The steady LPR fixings follow the central bank’s decision last week to roll over maturing medium-term policy loans and keep interest rate on those loans unchanged.

The medium-term lending facility (MLF) rate serves as a guide to the LPR and markets see it as a precursor to any changes to the lending benchmarks.

Widening yield differentials with other major economies, particularly the United States, and faltering domestic growth have pressured the Chinese yuan down more than 5% against the dollar this year, prompting authorities to ramp up efforts to rein in the weakness.

“Monetary policy rollout maintains its steady pace, and there are still chances for reductions to LPRs next month,” Xing Zhaopeng, senior China strategist at ANZ, said.

“Net interest margin is not an obstacle for rate cuts as banks have lowered deposit rates.”

Xing added that economic data will continue to improve in the fourth quarter and that the low base effect will ensure growth exceeds 5%.

“The policy impact will extend to the next few quarters. We have revised our 2023 and 2024 GDP forecast up to 5.1% and 4.2%,” he said.

China’s central bank last week lowered the amount of cash banks must hold as reserves for a second time this year to boost liquidity and support the economic recovery.

Despite the steady LPR, some market watchers said recent property easing measures suggest cuts to the five-year LPR and more policy stimulus are likely in coming months.

“Looking forward, we expect property sales volume to stabilise gradually at low levels in the coming months, infrastructure investment to grow at a robust but slower pace on a high base,” Wang Tao, chief China economist at UBS, said.

“We maintain our real GDP growth forecast of 4.8% for full-year 2023. The development of property downturn, the magnitude and pace of policy easing still remain the biggest uncertainty for future growth trajectory.”

China cut the one-year benchmark lending rate in August but surprised markets by keeping the five-year rate unchanged.


  • Reuters with additional editing by Jim Pollard




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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.


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