China maintains benchmark interest rates for fourth consecutive month

China It kept benchmark lending rates unchanged for the fourth month in a row on Tuesday, matching the forecasts of most market watchers who nonetheless expect further monetary easing to prop up a slowing economy.

The prime rate on one-year loans (LPR) remained at 3.65%, while the five-year prime rate remained at 4.30%.

Last week, the People’s Bank of China (PBOC, for its acronym in English) increased liquidity injections into the banking system and announced that it would keep its medium-term interest rate (MLF) unchanged for the fourth consecutive month. Market observers consider the MLF announcements as guidelines for any changes to the LPR.

In a subsequent Reuters poll, 17 of 27 market analysts projected no change to any key interest rates, but said more easing was likely already underway after senior officials last week promised focus on stabilizing the $17 trillion economy in 2023 and stepping up policy adjustment to ensure targets are met.

“The PBOC will likely lower long-term interest rates in the coming months, especially the five-year interest rate to support long-term real estate and business loans,” Commerzbank economists said in a note to clients.

In recent weeks, several officials have pledged to ensure sufficient liquidity in financial markets and to apply proactive fiscal policies to prop up the economy next year.

Xing Zhaopeng, estatega senior de China in ANZ, he said that with rates unchanged, household spending would continue without any increase in disposable income.

“When households reduce their balance sheets significantly, it becomes difficult to stimulate consumption, and that contradicts the guidelines of the Central Economic Work Conference to prioritize consumption,” Xing said, referring to a meeting of monetary policy makers held last week to chart the course of the economy in 2023.

The fact that LPRs were not cut was “a bit of a surprise” and markets will now pay attention to any further monetary policy moves, Xing said.

Long-term interest rates, which banks typically charge their best customers, are set by 18 designated commercial banks that submit their rate proposals to the central bank on a monthly basis.

Most new and outstanding loans in China they are based on the one-year rate, while the five-year rate influences the price of the mortgages. China last cut both in August to boost the economy.

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