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China Keeps Loan Prime Rates Unchanged

peoplesbankofchina 020317 20jan20 lt

China kept its benchmark lending rates unchanged for the second straight month, as widely expected, on Monday.

The one-year loan prime rate was retained at 4.15 percent and the five-year loan prime rate at 4.80 percent.

The rate was last reduced in November, which was the first cut since the new lending rate was introduced.

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

The People's Bank of China injected CNY 250 billion into the financial system via reverse repo on Monday.

The central bank conducted central bank bills swap, or CBS, operation to improve the liquidity of perpetual bonds. The CBS, valued at CNY 6 billion will be due on April 20, 2020.

According to official data released last week, China's economic growth eased to 6.1 percent in 2019, the lowest in nearly three decades. Nonetheless, the economic activity improved towards the end of the fourth quarter.

The PBoC appears to have adopted a wait-and-see approach in response to the recent improvement in the economic data, Julian Evans-Pritchard, an economist at Capital Economics, said.

"But with a slowdown in property construction only just getting underway, we are skeptical that the latest uptick in economic activity marks the start of a sustained turnaround," the economist added. The economist expects the LPR to decline a further 50 basis points by year-end.

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