China holds lending benchmarks, but ‘two sessions’ a ‘good time’ to cut rates, signal economic support

China’s one-year loan prime rate (LPR) was kept at 3.65 per cent, while the five-year LPR was unchanged at 4.30 per cent, the central bank said on Monday

But despite recovering momentum, some analysts expect rates will ease after China’s annual parliamentary gathering in March

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China’s annual parliamentary meetings, the ‘two sessons’ will take place at the start of March in Beijing. Photo: Xinhua

Published: 11:47am, 20 Feb 2023

China kept its benchmark lending rates unchanged for a sixth straight month in February, as expected, with the world’s second-largest economy showing more signs of recovery from a pandemic-induced slump.

A clutch of better-than-expected data recently suggests economic activity is rebounding as Beijing exited from its stringent zero-Covid strategy in December and shifted to a pro-growth policy stance.

The one-year loan prime rate (LPR) was kept at 3.65 per cent, while the five-year LPR was unchanged at 4.30 per cent, the People’s Bank of China (PBOC) said on Monday.

“We expect the PBOC to stay accommodative in the first half of this year, but only through liquidity-related actions, not rate cuts,” analysts at Barclays said.

“Unlike the US and EU, China remains the outlier on monetary policy, with still benign inflation and recovering but still weak activity creating room for the PBOC to remain accommodative in the first half.”

In a poll of 27 market watchers, 21, or 78 per cent of all participants, predicted no change to either rate.

New bank loans in China jumped more than expected to a record 4.9 trillion yuan (US$713 billion) in January as the central bank looks to kick-start recovery, while new home prices rose for the first time in a year, as Beijing stepped up support for the property sector that accounts for a quarter of the domestic economy.

Market participants also said the LPR decision was within expectations, as the PBOC ramped up medium-term liquidity injections, rolling over maturing policy loans last week while keeping the interest rate unchanged.

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