China maintained its benchmark loan prime rates for the 18th consecutive month, as widely expected.
The one-year loan prime rate was kept unchanged at 3.85 percent and the five-year LPR at 4.65 percent.
The one-year and five-year loan prime rates were last lowered in April 2020. The one-year loan prime rate was cut by 20 basis points and five-year rate by 10 basis points in April 2020.
Markets expected LPR rates to remain on hold as the People’s Bank of China had kept the rate on its medium-term lending facility unchanged early this month.
The loan prime rate is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. This lending rate replaced the central bank’s traditional benchmark lending rate in August 2019.
Pressure to relieve the financing strains of indebted borrowers will intensify as economic activity weakens, Julian Evans-Pritchard and Sheana Yue, economists at Capital Economics, said.
As such, the economists expect the PBOC to start lowering policy rates, including the LPR, before the end of this year, followed by more reductions in 2022. The economists expect 50 basis points of cuts in total and think that the 10-year yield will end next year at 2.50 percent.