By Pradeep Saran, September 20, 2023
In September, China’s banks decided to maintain their benchmark loan rates, a move reflective of the recent stabilization observed in the world’s second-largest economy due to the support provided by government policies.
The People’s Bank of China (PBOC) opted to keep the one-year loan prime rate, which serves as a reference for most household and corporate loans in China, steady at 3.45%. Simultaneously, the five-year benchmark loan rate, used as a reference for most mortgages, remained unchanged at 4.2%. This decision was communicated through a statement issued by the People’s Bank of China on Wednesday.
This announcement aligns with the expectations of economists for September, particularly following the PBOC’s decision to maintain its medium-term policy rate unchanged the previous Friday. Additionally, the PBOC had recently implemented a second reduction in the reserve requirement ratio for all banks, further indicating the central bank’s commitment to support the economy.
August brought positive news for China’s economic indicators, with retail sales and industrial production data released on the previous Friday surpassing expectations. These figures complemented a series of other data points released over the past three weeks. These include inflation rates, trade volumes, and the purchasing managers index, which are typically viewed as leading indicators, all pointing toward early signs of economic improvement.
In August, China had already reduced its one-year benchmark lending rate by 10 basis points, marking the second rate cut in three months. Surprisingly, it had decided to keep its five-year benchmark lending rate unchanged during the same period.
It’s important to note that China’s loan prime rate is determined on a monthly basis, taking into account the proposed rates submitted by 18 designated commercial banks to the People’s Bank of China. This collective decision by China’s banks to maintain their benchmark loan rates reflects the cautious approach taken by authorities to ensure the stability and gradual recovery of the Chinese economy.