China Keeps Benchmark Rates On Hold

China retained its benchmark rates for the fifth straight month as the economy continued to log robust recovery from the downturn caused by the coronavirus pandemic.

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 interest rates were expected to be retained today as the rate on its medium-term lending facility or MLF, which serves as a guide for the LPR, was maintained early this month.

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.

With the economy now largely back to its pre-virus path and the People’s Bank of China appearing reluctant to keep monetary policy loose for longer than needed, the next move in the LPR is likely to be an increase early next year, Julian Evans-Pritchard, an economist at Capital Economics said.

With fiscal policy to remain supportive for the remainder of the year, the PBOC appears to see little need for further rate declines and has instead shifted its focus back to containing financial risks, the economist noted.

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