China Maintained Key Lending Rate amid Weakness in Yuan’s Value

Chinese banks maintained their lending rate for the third month while the Central Bank remains cautious easing measures to shore up the pandemic hit economy dealing with fresh new lockdown amid increasing COVID-19 infections.

The People’s Bank of China said Wednesday, the one-year loan prime rate was held steady at 3.7%, the People’s Bank of China said Wednesday. The five-year rate, a reference for long-term loans including mortgages, was also unchanged at 4.6%.

Loan prime rates in China is a benchmark lending rates in the country as it is based on the quotes of 18 banks participate in it.

Analyst had predicted a drop because of several steps taken by the central bank recently to boost liquidity and ease funding costs for lenders.

Meanwhile the yuan’s weakness added to another complication, with lower rates reducing the appeal to Chinese assets to foreign investors – adding a downward pressure on the yuan.

The PBOC set its reference rate for the yuan at a weaker level on Wednesday.

Iris Pang, chief economist for Greater China at ING Greop NV, said the PBOC’s actions have limited effect in boosting growth and focus should be on fiscal support.

“The PBOC itself says that liquidity is ample, so it’s not going to do a lot on monetary policy and that leaves more policy room for the fiscal side,” she said in an interview on Bloomberg TV as reported by Bloomberg.

“Whether banks are ready to lend is a big question mark during this time, whether banks can identify the good credit quality borrowers is a big question.”

The one-year LPR was previously lowered in December and January, after the PBOC’s RRR and interest rate cuts.