Financial News: China Keeps Benchmark Lending Rates On Hold

China Keeps Benchmark Lending Rates On Hold

09/20/2024 - 02:41:00 (RTTNews)

(RTTNews) - China retained its benchmark lending rates on Friday even after the US Federal Reserve reduced its rate by a sharper-than-expected half a percentage point this week.

The People's Bank of China kept its one-year loan prime rate unchanged at 3.35 percent. Similarly, the five-year LPR, the benchmark for mortgage rates, was retained at 3.85 percent.

The bank had last reduced the LPR in July, by 10 basis points.

The PBoC fixes the LPR monthly based on the submission of 18 designated banks. That said, Beijing has influence over the fixing. The LPR replaced the traditional benchmark lending rate in August 2019.

Despite the need for monetary policy easing, the lack of any reduction to policy rates today highlights the extent to which the PBoC remains constrained by concerns about bank profitability and declining long-term bond yields, economists at Capital Economics, said.

"To make room for rate cuts, they may first need to ease pressure on banks by lowering reserve requirements, a move we expect to happen soon," economists said.

The monetary policy easing over the coming quarters is likely to remain modest in scope and insufficient to drive a turnaround in private sector demand, they added. Elsewhere, the US Federal Reserve slashed its benchmark rate by 50 basis points on Wednesday, which was the first reduction in over four years.

On Thursday, the Bank of England maintained its bank rate at 5.00 percent after a quarter point reduction in August. Earlier today, the Bank of Japan also left its key rate unchanged but after a hike in July.

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