China unexpectedly keeps lending benchmark rate unchanged

SHANGHAI (REUTERS) – China kept its benchmark lending rate steady on Friday (March 20), defying expectations for a reduction to ease borrowing costs in an economy jolted by widespread disruptions to businesses from the coronavirus pandemic.

The one-year loan prime rate (LPR) was left unchanged at 4.05 per cent from the previous monthly fixing while the five-year LPR remained at 4.75 per cent.

Forty respondents, or 71.4 per cent of all participants, in a Reuters snap survey had expected a reduction in the LPR, with 36 predicting either a five basis point or 10 basis point cut in the one-year tenor and no change to the five-year rate.

The LPR is a lending reference rate set monthly by 18 banks. The People’s Bank of China revamped the mechanism to price LPR in August 2019, loosely pegging it to the medium-term lending facility rate.

However, the PBOC left borrowing cost on its one-year medium-term lending facility (MLF) loans unchanged on Monday, despite its US counterpart’s decision to slash interest rates to near zero to counteract the economic shock from the coronavirus outbreak.

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