China keeps benchmark loan rate steady for ninth straight month with ‘inaction not surprising’
- 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
- It was announced this week that China’s gross domestic product climbed by 6.5 per cent in the final quarter of 2020 from a year earlier, pushing growth to 2.3 per cent for the full year.
China kept its benchmark lending rate for corporate and household loans the same for a ninth straight month at its January fixing on Wednesday, matching market expectations.
“Commercial banks left the loan prime rate on hold. But with monetary conditions already being tightened in practice and underlying inflation set to rebound, we think it is still likely that the [People’s Bank of China] opts to formally hike rates later this year,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“The inaction does not come as a surprise since the [People’s Bank of China] had not adjusted the rate on its medium-term lending facility (MLF) this month as it did ahead of the past three LPR moves. This would have been the most straightforward way for the [People’s Bank of China] to influence the LPR, which is set as a spread above the MLF rate.”
With the economy now expanding at the fastest pace in two years on the back of a broad-based recovery in the services sector, the [People’s Bank of China] is shifting its focus away from supporting growth back towards containing financial risks