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China holds key rates after Fed’s cut, but ‘modest’ easing may come later
China’s five-year loan prime rate remained unchanged even after the US Federal Reserve kicked off its rate-cutting cycle
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China surprised the market by leaving a mortgage-linked lending rate unchanged on Friday, despite rising calls to help revive the crisis-hit property market and also drive the national economy.
The five-year loan prime rate (LPR), which is widely used by Chinese banks as a reference for mortgage rates, remained unchanged at 3.85 per cent, the People’s Bank of China said on Friday.
China’s one-year LPR also remained unchanged at 3.35 per cent.
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A survey by Reuters had expected an LPR cut, especially after the US Federal Reserve announced an interest-rate cut of half a percentage point on Wednesday, which analysts believed gave the PBOC more room to carry out easing policies amid shrinking domestic demand and a prolonged property downturn.
“It came as a surprise to me, as I expected the PBOC to follow the Fed and cut the loan prime rate by 10 basis points,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.
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“Latest activity data shows economic momentum is weakening, the real interest rate is quite high in China, and the exchange rate is not under pressure to depreciate, yet the PBOC prefers to keep loan prime rate unchanged.
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