SHANGHAI/SINGAPORE, July 20 (Reuters) – China left its lending rates unchanged, even after the central bank left a key policy rate on hold earlier this week.
China’s economy grew at a weak pace in the second quarter, with more supportive measures boosting investor confidence to ensure Beijing’s growth target remains on track for the year.
However, many market watchers say the stimulus is targeted and limited in scope, and any rate cuts could further widen the interest rate differential with the US and pressure the already weak yuan.
The one-year loan prime rate (LPR) was 3.55% and the five-year LPR was 4.20%.
In a poll of 26 market watchers conducted this week, all participants predicted no change in both rates.
The stable LPR determinations come as the People’s Bank of China (PBOC) rolled back maturing medium-term policy loans and kept interest rates unchanged earlier this week.
The Medium Term Lending Facility (MLF) rate acts as a guide to LPR and markets often use the MLF rate as a precursor to any changes in credit standards.
China’s central bank said last week that it will use policy tools such as the reserve requirement ratio (RRR) and the medium-term credit facility (MLF) to address challenges facing the world’s second-largest economy.
The LPR, which banks typically charge their best customers, 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 affects the cost of mortgages. China cut both LPRs in June to boost the economy.
Reporting by Winnie Cho and Tom Westbrook; Editing by Jacqueline Wong and Sri Navaratnam
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