China Keeps Key Lending Rates Unchanged

China left its benchmark lending rates unchanged on Monday, as widely expected, despite the economy struggling to gain traction.

The People’s Bank of China retained its one-year loan prime rate, or LPR, at 3.65 percent. Likewise, the five-year LPR, the benchmark for mortgage rates, was kept unchanged at 4.30 percent.

Previously, the bank had reduced the five-year LPR rate by 15 basis points each in May and August 2022, and by 5 basis points in January 2022. The one-year LPR was last lowered in August 2022.

The LPR is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. The LPR replaced the central bank’s traditional benchmark lending rate in August 2019.

Markets anticipated the central bank to hold the LPR today as the medium-term lending facility, or MLF, which acts as a guide to the LPR, was kept unchanged last week.

The PBoC had injected CNY 499 billion into the financial system via one-year MLF at an unchanged rate of 2.75 percent. The bank also conducted CNY 203 billion of seven-day reverse repo operation at 2.0 percent.

In January, the banks had extended a record CNY 4.9 trillion of loans after the relaxation of pandemic related restrictions boosted demand for credit from the corporate sector.

The International Monetary Fund forecast China’s economic growth to rise to 5.2 percent in 2023, reflecting rapidly improving mobility, but to weaken to 4.5 percent next year before settling at below 4 percent over the medium term.

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