China keeps lending benchmarks unchanged in March, as expected

SHANGHAI  – China kept its benchmark lending rates unchanged for the seventh straight month in March, as expected, after the central bank surprised markets last week by moving to lower the amount of cash banks must set aside as reserves.

Market watchers widely believe the need for more imminent monetary easing was reduced after the People’s Bank of China (PBOC) said on March 17 it would cut the reserve requirement ratio (RRR).

On Monday the one-year loan prime rate (LPR) was kept at 3.65 percent, while the five-year LPR was unchanged at 4.3 percent.

In a Reuters poll conducted last week, all 22 participants predicted no change to either rate. Such unanimity has been rare in previous surveys.

Last week the PBOC ramped up medium-term liquidity injections when rolling over maturing policy loans but kept the interest rate unchanged. That rate, called the medium-term lending facility (MLF) rate, serves as a guide to changes in the LPR.

The LPR, which banks normally charge their best clients, is set by 18 designated commercial banks that submit proposed rates to the central bank every month.

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

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