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China Keeps Loan Prime Rates Unchanged

China left its benchmark lending rates unchanged on Tuesday after the central bank lowered its reserve requirement ratio last week.

The one-year loan prime rate was maintained at 3.85 percent and the five-year loan prime rate at 4.65 percent.

The one-year and five-year loan prime rates were last lowered in April 2020. The one-year loan prime rate was cut by 20 basis points and five-year rate by 10 basis points in April 2020.

Markets have expected the rates to remain on hold today as the People’s Bank of China had kept the rate on its medium-term lending facility unchanged early this month.

The loan prime rate is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. This lending rate replaced the central bank’s traditional benchmark lending rate in August 2019.

Earlier in a note, ING economists said China’s economic growth path has not changed but the risk of bad loans from deleveraging reforms on real estate property developers and fintech are increasing.

In an unexpected move, the PBoC last week reduced the reserve requirement ratio by 0.5 percentage points in order to increase the fund available for lending and support economic growth.

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