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China keeps loan prime rate unchanged as economic recovery remains uncertain

Published 03/19/2024, 09:28 PM
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Investing.com-- The People’s Bank of China kept its benchmark loan prime rate unchanged on Wednesday, as expected,  amid persistent doubts over an economic recovery in the country. 

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

Both rates were left at record lows, as the PBOC moved to keep monetary conditions as loose as possible to help spur an economic recovery. The central bank had cut the five-year LPR by a slightly bigger-than-expected margin in February, with the move aimed chiefly at supporting the beleaguered property sector. 

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.

Further reductions in the LPR appear unlikely in the near-term, given that Beijing is growing increasingly uncomfortable with weakness in the Chinese yuan. The currency’s USDCNY pair hovered just below the psychologically important 7.2 level in recent sessions. 

Economic uncertainty persists amid mixed data

Stronger-than-expected industrial production data released earlier this week spurred some hopes that resilience in China’s biggest economic drivers will help spur a recovery this year. 

Fixed asset investment also grew more than expected in the first two months of 2024, while signs of increased consumer spending and travel demand during the Lunar New Year holiday pushed up hopes for a recovery in consumption.

But retail sales data for January and February missed expectations, despite a boost from holiday spending. 

China’s unemployment rate also unexpectedly rose in the first two months of the year, indicating that cracks in some aspects of the economy were deepening.

The property market, which was walloped by weakening sales and a series of high-profile defaults over the past three years, remained a key pain point for the Chinese economy.

Any further reductions in the LPR are likely to be spurred by worsening conditions in the property sector.

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