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China keeps loan prime rate steady as economy improves

Published 04/21/2024, 09:17 PM
© Reuters

Investing.com-- The People’s Bank of China kept its benchmark loan prime rate unchanged on Monday as widely expected, amid some recent improvement in the Chinese economy, although the central bank is still expected to trim rates eventually.

The PBOC kept its one-year LPR at 3.45%, while the five-year LPR, which is used to set mortgage rates, was left at 3.95%. 

Both rates were at record lows, as the Chinese government sought to shore up economic growth by keeping local monetary conditions as loose as possible. To this end, the PBOC had cut the 5-year LPR in February to help support the property market. The LPR is determined by the PBOC based on considerations from 18 designated commercial banks, and is used as a benchmark for lending rates in the country.

China’s economy picked up some pace in the first quarter of 2024, with recent gross domestic product data showing slightly better-than-expected growth. The economy also remained on track to meet the government’s 5% annual growth target. 

A bulk of this strength came from increased capital spending and investment by the government. 

But a deflationary trend persisted, while consumer spending also remained weak as a property market crisis deepened, and as global demand for Chinese exports remained laggard.

This kept investors widely expecting more LPR cuts by the PBOC later this year, especially as economic indicators for March already showed some cooling in growth. 

But just how much the PBOC will cut interest rates remains to be seen, given that Beijing has also shown increasing discomfort with recent weakness in the yuan.

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