China Economy

China keeps benchmark lending rate steady for fourth straight month, in line with expectations

Key Points
  • The one-year loan prime rate was kept unchanged at 3.85%, while the five-year LPR remained at 4.65%.
  • Most new and outstanding loans are based on the LPR, while the five-year rate influences the pricing of mortgages.
  • The rate decision came after the People's Bank of China injected more fresh liquidity through its medium-term lending facility on Monday, while keeping borrowing costs unchanged for the fourth straight month.
A man wears a protective mask as he rides past the The People's Bank of China in Beijing.
Emmanuel Wong | Getty Images

China kept its benchmark lending rate for corporate and household loans steady as expected for the fourth straight month at its August fixing on Thursday.

The one-year loan prime rate was kept unchanged at 3.85%, while the five-year LPR remained at 4.65%.

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

Twenty-eight traders and analysts out of 31 participants in the snap survey conducted by Reuters this week had predicted no change to the either rates.

The rate decision came after the People's Bank of China injected more fresh liquidity through its medium-term lending facility on Monday, while keeping borrowing costs unchanged for the fourth straight month.

MLF, one of the PBOC's main tools in managing longer-term liquidity in the banking system, serves as a guide for the LPR.

The PBOC said in its second quarter monetary policy report published earlier this month that lending costs in the real economy were significantly lower, tracking downward adjustments to the LPR, and that the size of declines were greater than cuts to the LPR. The one-year LPR was lowered by 20 basis points in the second quarter.

July activity data released last week also suggested China's economic recovery remains on track but may have lost some momentum, with retail sales continuing to contract.

The LPR is a lending reference rate set monthly by 18 banks.

The PBOC revamped the mechanism to price LPR in August 2019, loosely pegging it to the MLF rate.