PBoC maintains loan prime rates as expected
By Josh White
Date: Monday 20 Mar 2023
(Sharecast News) - The People's Bank of China announced on Monday that it will maintain current loan prime rates (LPR) for both one- and five-year loans, following a 0.25 percentage point cut in the reserve requirement ratio (RRR) for nearly all banks last week.
It confirmed the one-year LPR would remain at 3.65%, and the five-year at 4.3%, with both rates consistent since August last year.
PBoC governor Yi Gang had described the current real rates as "relatively appropriate" during a meeting just before the National People's Congress.
Additionally, the Bank had previously maintained the one-year medium-term lending facility (MLF) rate at 2.75% for March.
Duncan Wrigley, chief China economist at Pantheon Macroeconomics, noted that the move came after the RRR cut, which will take effect from 27 March and lower the weighted average requirement to 7.6%.
"We see this as the Bank topping up commercial banks' lending capacity, after significant credit extension to the real economy in January and February," Wrigley said.
"Government bond issuance and long-term corporate loans were particularly strong, indicating that policy-sensitive investment sectors probably led credit demand.
"By contrast, private sector fixed asset investment barely grew in the first two months, with private companies more exposed to soft global demand."
Wrigley said the market was expecting policymakers to monitor the recovery's expansion from policy-sensitive investment sectors and select consumer services to more comprehensive consumption, the property market, and private business investment.
"They will reserve major policy support in case the domestic demand recovery falters later in the year."
Reporting by Josh White for Sharecast.com.
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