2023-10-20 04:18:17
Chinese banks held their benchmark interest rates on hold, after the central bank refrained from reducing its borrowing costs in one of its key policy loans.
The prime rate on one-year loans remained stable at 3.45%, while the five-year rate, a benchmark for mortgages, remained unchanged at 4.2%., according to data from the People’s Bank of China on Friday. Most economists surveyed by Bloomberg had forecast no changes to either rate.
The lending rates are based on the People’s Bank of China’s rate on the medium-term credit facility, which stood at 2.5% earlier this week. The economy gained momentum last quarter, while China’s widest yield gap with the United States since 2002 is limiting the People’s Bank of China’s scope to cut rates further to avoid adding downward pressure on the yuan.
The central bank is also concerned about the shrinking profit margin of commercial lenders, which have come under pressure from much of this year’s policy stimulus. To target the economy, the government has ordered Chinese banks to provide cheap loans to specific sectors, reduce the costs of more mortgages and expand local government debt at lower interest rates, among other measures.
Chinese banks have been reducing the rates they offer depositors to protect their profitability as they reduce interest rates. Major lenders already implemented three coordinated cuts last year.
The country’s real estate crisis continues to be a problem for the economy. The People’s Bank of China has indicated that further monetary easing if necessary is still on the cards. Its monetary policy chief recently assured investors that Beijing still has room to deal with “challenges and unexpected changes.”
Economists expect authorities to further reduce interest rates and the reserve requirement ratio for banks this year.
LPRs are based on the interest rates that 18 banks offer their best customers and are published monthly by the People’s Bank of China. They are quoted as a spread over the FML rate.
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