SHANGHAI – China’s commercial lenders held their benchmark lending rates steady on Jan 22, in line with the central bank’s decision to maintain policy rates amid concerns over pressures on the renminbi.
The one-year loan prime rate (LPR) was held at 3.45 per cent, matching the consensus forecast by economists surveyed by Bloomberg. The five-year rate, a reference for mortgages, was kept steady at 4.2 per cent as projected, data from the People’s Bank of China (PBOC) showed.
The steady rates underscore Beijing’s reluctance to flood the economy with monetary stimulus. They also illustrate the desire to ensure the existing amount of credit is used efficiently, since fast-growing money supply has yet to translate into a significant improvement in actual borrowing.
While cutting rates can boost dwindling confidence, Beijing has to balance any easing with the need to bolster the nation’s massive banking system and safeguard the renminbi.
The LPRs are based on the interest rates that 20 banks offer their best customers. They are quoted as a spread over the central bank’s one-year policy rate, or the medium-term lending facility rate, which was kept unchanged at 2.5 per cent last week. The PBOC, which publishes the LPRs monthly, is seen as having significant sway over them.
Investors have so far been underwhelmed by Beijing’s policies to keep economic momentum going. Official data released last week failed to shake off several of the concerns most persistently weighing on the world’s second-largest economy.
While China hit its roughly 5 per cent growth target in 2023, it is recording its worst deflationary streak since the Asian financial crisis of 1997/1998. Home prices fell in December by the most since 2015, underscoring the scale of the real estate crash.
China’s top leaders have said at recent policy meetings that they will maintain supportive monetary policy. Economists expect that to translate into moderate cuts to PBOC policy interest rates and trims to the amount of money banks must hold, known as the reserve requirement ratio, as soon as in the first quarter. BLOOMBERG
