China keeps lending benchmarks unchanged, but may soon cut them

With our partner YicaiGlobal – Analysts are still expecting a benchmark five-year lending rate cut as soon as possible in China, after the People’s Bank of China kept rates unchanged today after a sharp cut in August.

The People’s Bank of China kept the one-year loan prime rate at 3.65% and the five-year loan prime rate (LPR) at 4.3% at the monthly rate. In August 2022, he cut the one-year LPR by 5 basis points and the five-year rate and more by 15 beeps.

China’s central bank has cut rates three times so far this year to an all-time lowMerchants & Unicom Finance chief researcher Dong Ximiao told Yicai Global.

But with major economies in Europe and the United States rapidly increasing borrowing costs, keeping interest rates stable will help keep the yuan’s exchange rate stable, he added.

The Chinese central bank is expected to cut the five-year LPR from 10 to 15 beeps in October 2022, according to Wang Qing, macro analyst at Golden Credit Rating.

To hedge against weak demand in overseas markets and the impact of Covid-19 waves in some cities, boosting lending to the real economy will remain an important macroeconomic policy objective., Wang Qing explained. The recent new round of deposit rate cuts at banks also made room for future LPR adjustments, he added.

Major commercial banks cut rates on deposit accounts in mid-September, keeping interest margin income stable in a low interest rate environment.

Dong Ximiao stressed that Chinese monetary policies can go further and that the LPR should continue to fall. The current average reserve requirement ratio for financial institutions is 8.1 percent, indicating that it may decline further in the future, he said.