China keeps key lending rates steady in September

China’s benchmark lending rates, the loan prime rates (LPRs), remained unchanged in September, as the central bank maintained its medium-term policy rate steady. The decision was in line with market expectations, as recent economic data showed signs of recovery and a weakening yuan reduced the pressure for monetary easing.

The one-year LPR, which affects most new and outstanding loans, was kept at 3.45%, while the five-year LPR, which influences the pricing of mortgages, was unchanged at 4.20%. The LPRs are based on the rates of medium-term lending facility (MLF) loans, which the central bank rolled over last week at the same interest rate of 2.95%.

China keeps key lending rates steady in September
China keeps key lending rates steady in September

The LPRs are set by 18 banks and published on the 20th day of each month. The central bank has been guiding the LPRs lower since August 2019, when it revamped the mechanism to make it more market-oriented and transparent. The last cut was in April this year, when the one-year LPR was reduced by 20 basis points and the five-year LPR by 10 basis points.

The stable LPRs reflect the central bank’s cautious stance on monetary policy, as it balances the need to support the economy amid the COVID-19 pandemic and the risks of excessive stimulus and debt. China’s economy grew by 3.2% year-on-year in the second quarter, rebounding from a 6.8% contraction in the first quarter. However, the recovery remains uneven and uncertain, as domestic demand and consumption are still weak and external risks persist.

Some analysts expect the central bank to lower the LPRs in the coming months, as deflationary pressures and rising real borrowing costs weigh on the economy. Others believe that the central bank will refrain from further rate cuts and rely more on fiscal policy and targeted measures to support specific sectors and regions.

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