China Leaves Benchmark Lending Rates Unchanged

China’s central bank left its key interest rates unchanged for the third consecutive month as the economy showed signs of recovery from the unprecedented slump caused by the coronavirus pandemic.

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 bank was expected to retain its rates Monday as the medium lending facility rate was kept unchanged at 2.95 percent earlier this month.

The one-year and five-year loan prime rates were last reduced in April. The one-year loan prime rate was lowered by 20 basis points and five-year rate by 10 basis points in April.

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.

A broad-based easing is not only unnecessary as the economy shows signs of recovery but it could also fuel asset price increases, Iris Pang, an ING economist said.

The economist expects that the PBoC to continue its targeted easing approach for smaller businesses. Apart from targeted easing, any broad-based interest rate cuts or RRR cuts during the economic recovery is not expected, she added.

Data released last week showed that the economy had expanded 3.2 percent on a yearly basis in the second quarter, in contrast to the 6.8 percent contraction logged in the first three months, which was the first fall since 1992.

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