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China Maintains Benchmark Lending Rates

china aug14 20apr21 lt

China kept its benchmark lending rates unchanged, as widely expected, on Tuesday.

The one-year loan prime rate was retained at 3.85 percent and the five-year loan prime rate was maintained 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 last April.

Markets have expected the rates to remain on hold today 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 new lending rate replaced the central bank's traditional benchmark lending rate in August 2019.

"Given that official efforts to rein in credit are being achieved by other means, we do not expect any changes to policy rates in the coming months," Julian Evans-Pritchard and Sheana Yue, economists at Capital Economics, said.

With the economy doing well, policymakers are now focused on tackling financial risks, they noted.

Even in the absence of rate hikes, tighter credit conditions will become an increasing headwind to economic activity over the coming quarters, the economists added.

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