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China Keeps Benchmark Lending Rates Unchanged

china flag 041317 21jun21 lt

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

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

As the People's Bank of China had kept the rate on its medium-term lending facility unchanged early this month, markets widely expected the rates to remain on hold today.

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.

The PBoC has now fully reversed last year's credit acceleration using quantitative controls, Sheana Yue and Mark Williams, economists at Capital Economics, said. Accordingly, policy rate hikes that could prompt LPR increases are unlikely in the near future.

The key point for the economy is that the tighter credit conditions will act as a headwind over the coming quarters even in the absence of any rate changes, the economists added.

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