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China kept its benchmark lending rates unchanged for the fourth consecutive month, matching market expectations, though market watchers continued to expect Beijing to deliver further monetary easing into the new year to support a sputtering economic recovery.
The one-year loan prime rate (LPR) was kept unchanged at 3.45%, while the five-year LPR was steady at 4.20%.
Most new and outstanding loans in the country are based on the one-year LPR, which was lowered twice by a total of 20 basis points in 2023. The five-year rate influences the pricing of mortgages and it was lowered by 10 basis points so far this year.
The steady rate fixings came after the central bank kept its medium-term policy rate unchanged, and the one-year LPR is loosely pegged to the medium-term lending facility (MLF) rate. Market participants typically see changes in the MLF as a precursor to changes in the LPR.
The People’s Bank of China (PBOC) ramped up liquidity injections through medium-term policy loans last week, while keeping the interest rate unchanged.
The central bank injected a net 800 billion yuan ($112.22 billion) of fresh funds into the banking system through medium-term lending facility (MLF) loans, booking the biggest monthly increase on record.
Some analysts said policymakers may need some time to evaluate the effects of recent fiscal support and renewed efforts to revive the sluggish property market.
“The most recent push for lower spreads which allows commercial banks to charge less for new housing loans in tier-one Shanghai and Beijing has yet to be fully felt and warrants observation before more aggressive declines in the reference rate,” said Bob Savage, head of markets strategy and insights at BNY Mellon Capital Markets.
The LPR, which banks normally charge their best clients, is set by 18 designated commercial banks who submit proposed rates to the central bank every month.