© Reuters. Paramilitary police officers stand guard in front of the headquarters of the People’s Bank of China, the central bank (PBOC), in Beijing, China September 30, 2022. REUTERS/Tingshu Wang/File Photo
Exciting news from China as the country chose to maintain its benchmark lending rates at the monthly fixing on Wednesday, meeting market expectations. This decision comes after the central bank kept its medium-term policy rate steady last week. However, there is still anticipation for further monetary easing in the new year to provide support for the economy and counteract deflationary pressure.
The one-year loan prime rate (LPR) was held at 3.45%, and the five-year LPR remained unchanged at 4.20%. The majority of new and outstanding loans in China depend on the one-year LPR, which was lowered twice by a total of 20 basis points in 2023. On the other hand, the five-year rate, which influences the pricing of mortgages, currently stands at 4.20% and has been lowered by 10 basis points so far this year.
All 28 participants in a Reuters survey this week predicted no change in either the one-year or five-year LPR, aligning with the steady fixings. The PBOC’s decision to ramp up liquidity injections through medium-term policy loans and the subsequent record increase in funds injected into the banking system has left experts anticipating possible rate and credit cuts in the coming year.
It is a move that will be closely observed considering the potential impact of recent fiscal support and renewed efforts to revive the sluggish property market. Despite remaining cautious, with the effects of recent initiatives yet to be fully felt, some analysts emphasized the need for observation before expecting more aggressive declines in the reference rate.
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