China ‘unsurprisingly’ keeps benchmark loan rate unchanged for eighth straight month ahead of ‘hike’ in 2021

The one-year loan prime rate (LPR) was kept unchanged at 3.85 per cent, while the five-year LPR remained at 4.65 per cent

Last week, China’s top policymakers pledged to continue ‘necessary support’ for the nation’s economic recovery

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The rate decision reflected continued economic recovery from coronavirus shocks in the world’s second-largest economy, and comes after the central bank made its biggest ever injection of medium-term funds last week to shore up liquidity. Photo: Reuters

Published: 10:13am, 21 Dec 2020Updated: 10:47am, 21 Dec 2020

China kept its benchmark lending rate for corporate and household loans unchanged at its December fixing on Monday, as expected, although improving economic fundamentals have raised speculation about a rate hike next year.

The one-year loan prime rate (LPR) was kept unchanged at 3.85 per cent, while the five-year LPR remained at 4.65 per cent, confirmed the People’s Bank of China (PBOC).

For the year, the one-year LPR was down a total 30 basis points of rate cuts, and the five-year rate was cut by 15 basis points of two cuts in 2020.

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

All 34 traders and analysts in a snap Reuters poll conducted last week predicted no change in either one-year or five-year LPRs.

With the economy now back on track, the PBOC is shifting its focus away from supporting growth back towards reining in financial risks. It has already allowed market interbank rates to return to pre-Covid levels

Julian Evans-Pritchard

“Commercial banks left the loan prime rate on hold. But with China’s leadership eyeing a gradual withdrawal of policy support, we think the PBOC will start to hike its policy rates next year,” said Julian Evans-Pritchard, senior China economist at Capital Economics.