Breaking News
Investing Pro 0
Free Webinar - Crude Oil Trading 2023 | Thursday, February 9, 2023 | 01:00PM PST Enroll Now

China leaves lending benchmarks unchanged amid global rates squeeze

Economy Sep 19, 2022 10:40PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: People wearing face masks walk past the headquarters of Chinese central bank People's Bank of China (PBOC), April 4, 2020. REUTERS/Tingshu Wang/File Photo/File Photo
 
USD/CNH
-0.01%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

SHANGHAI (Reuters) - China kept its benchmark lending rates unchanged at a monthly fixing on Tuesday, as expected, as authorities appeared to hold off immediate monetary easing following rapid declines in the local currency and as central banks elsewhere tightened policy.

The decision came just days ahead of the Federal Reserve's September policy meeting, at which the U.S. central bank is widely expected to deliver another hawkish interest rate hike to stem rampant price rises.

Widening divergence in the monetary policies of the world's two largest economies could stoke fears of capital flight out of China, just as Beijing seeks to marshal resources to revive sluggish growth.

The one-year loan prime rate (LPR) was kept at 3.65%, while the five-year LPR was unchanged at 4.30%.

In a Reuters poll conducted this week, 21 out of 28 respondents, or 75% of all participants, predicted no change to either rate.

The steady LPR fixings came after the People's Bank of China (PBOC) last week left its medium-term policy rate unchanged, while draining some liquidity from the banking system.

China lending rates https://graphics.reuters.com/CHINA-ECONOMY/LPR/myvmnzrzwpr/chart.png

The borrowing cost of the medium-term lending facility (MLF) serves as a guide to the LPR, and markets usually use the medium-term rate as a precursor to any changes to the lending benchmarks.

"That should not come as a surprise as the MLF rate was kept unchanged earlier," said Frances Cheung, rates strategist at OCBC Bank.

"Still, LPR reflect banks' overall funding costs which have some downside room with deposit rates trending lower," Cheung added, noting some of China's largest banks lowered personal deposit rates last week to ease pressure on margins.

Analysts said policymakers are carefully striking a balance between supporting a slowing economy and not creating new economic risks.

Beijing's policy divergence with most other major economies, which are raising interest rates aggressively to tame inflation, has piled pressure on the currency and limited room to further maneuver monetary easing.

China cut key interest rates in August, as Beijing boosted efforts to revive an economy hobbled by a property crisis and a resurgence of COVID-19 cases.

To cut or not to cut? https://graphics.reuters.com/CHINA-ECONOMY/LPR/egvbkrgrjpq/chart.png

But those rate cuts have accelerated the yuan's declines. It has lost about 4% to the dollar since mid-August, breaching the psychologically important 7 per dollar mark and prompting capital outflow risks.

"Outright rate cut has always been only one of the options in the PBOC toolbox and the weak RMB has further reduced the chance of rate cut being delivered," OCBC's Cheung said.

Risk of capital outflow https://graphics.reuters.com/CHINA-ECONOMY/LPR/zgvomodomvd/chart.png

The LPR, which banks normally charge their best clients, is set by 18 designated commercial banks who submit proposed rates to the PBOC every month.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.

Marco Sun, chief financial market analyst at MUFG Bank (China), said economic indicators surprised on the upside in August.

"If the recent economic recovery is not sustainable, the Chinese authorities are still likely to further lower interest rates," Sun added, expecting monetary easing possibly in the fourth quarter.

China leaves lending benchmarks unchanged amid global rates squeeze
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email