Unchanged LPR indicates PBC’s prudent monetary policy


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Unchanged LPR indicates PBC’s prudent monetary policy


Source: Global Times    Published: 2019-10-21

The loan prime rate (LPR) for one- and five-year terms in October has remained unchanged from the previous month, according to the People's Bank of China (PBC) on Monday, and analysts said the situation indicates prudent monetary policy.

For one-year maturities, the LPR was unchanged from last month's 4.2 percent, and the five-year prime rate stayed flat at 4.85 percent, according to the National Interbank Funding Center, a unit of the central bank, on Monday.

"The flat prime rates indicate a prudent monetary policy on the part of the central bank and stable market liquidity," Zhao Xijun, a vice director of the School of Finance at Renmin University of China, told the Global Times on Monday.

The PBC's announcement followed the National Bureau of Statistics' release of third-quarter GDP figures on Friday. China's GDP growth slowed to 6.0 percent in the third quarter, a 27-year low, and GDP growth averaged 6.2 percent in the first three quarters.

"China is unlikely to stimulate its economy, which faces downward pressure, by cutting interest rates, as the US Federal Reserve has done," said Zhao. "China will promote lower real lending rates through reform of the LPR mechanism and tools like medium-term lending facility loans."

PBC Governor Yi Gang said at the G20 summit of finance leaders on Friday in Washington that the central bank has pursued a prudent monetary policy, further deepened market-oriented reform of interest rates, maintained steady growth in money supply and credit, and kept market interest rates low.

This did not rule out the possibility that monetary policy is more constrained by the recent rise in inflation, analysts said.

The consumer price index is likely to rise significantly in October, putting more pressure on monetary loosening in the short term, according to a report released by analysts at China International Capital Corp on Monday.

The one-year prime rate was lowered 5 basis points to 4.2 percent for one-year maturities in September, with an unchanged five-year prime rate, which is generally used as a reference for mortgages.

"The prime rate is based on the interest rate of MLF loans and is reflected by market interest rates, which have been greatly reduced compared with last year," said Zhao.

Zhao Xijun is associate dean of School of Finance and senior fellow of Chongyang Institute for Financial Studies, Renmin University of China.