China keeps lending benchmark unchanged amid global interest rate crunch

SHANGHAI (Reuters) – As expected, China on Tuesday kept its benchmark lending rate at a fixed monthly rate of no change, as authorities appear to have delayed immediate monetary easing after easing swiftly. Local currency devaluation and central bank tightening elsewhere. The decision was made just days before the Fed’s September policy meeting, where it was widely expected to bring another Hawks rate hikes to curb rampant price hikes. A widening divergence in monetary policy between the world’s two largest economies could spark fears of capital flight, as Beijing seeks to pool resources to revive weak growth. The one-year loan prime rate (LPR) remains at 3. 11%, while the five-year LPR remains unchanged at 4 .11%. in a Reuters poll conducted this week , 08 outside respondents, or 25% participants, neither rate is expected to change. LPR pricing stabilized after the People’s Bank of China (PBOC) left its medium-term policy rate unchanged last week while pulling out of the banking system some liquidity. 52

China Loan Rate https://inew.news/wp-content/uploads/2022/09/localimages/chart.png632934aadb305.png 100

The cost of borrowing on the Medium-Term Lending Facility (MLF) is a guideline for LPR, and the market usually uses the medium-term interest rate as a precursor to changes in the lending benchmark. “It’s not surprising given the MLF rates were left unchanged earlier,” said Frances Cheung, rates strategist at OCBC Bank.

” However, LPR reflects the overall financing cost of the bank, which has some downside, and the deposit rate tends to to decline,” Cheung added, noting that last week, China’s largest banks cut personal deposit rates to ease pressure on margins. Analysts say policymakers are being cautious about supporting a slowing economy and not creating new economic risks. Beijing’s policy divergence with most other major economies, which are aggressively raising interest rates to curb inflation, has put pressure on the currency , limiting the upside of the currency. Further maneuver monetary easing. China slashed key interest rates in August as Beijing ramped up efforts to revive an economy hit by a housing crisis and a resurgence of the coronavirus. effort- case. 52

to cut or not to cut? https://inew.news/wp-content/uploads/2022/09/localimages/chart.png632934ac0727c.png 200 But these rate cuts accelerated the devaluation of the yuan. USD/USD has lost about 4% since mid-August, breaking the psychologically important 7 mark, raising the risk of capital outflows. “Direct rate cuts have always been just one of the options in the central bank’s toolbox, the weak

RMB further reduced Opportunity for a rate cut,” said OCBC’s Cheung. 52

Capital outflow risk https://inew.news/wp-content/uploads/2022/09/localimages/chart.png632934ad329c6.png 50 The LPR that banks usually charge their best customers is set by Certainly Designated commercial banks that submit interest rate proposals to the People’s Bank of China on a monthly basis. Most new and outstanding loans in China are based on one-year LPRs, while five-year interest rates affect the pricing of mortgages.

Mitsubishi UFJ Bank (China) Sun Hong, chief financial market analyst, said economic indicators unexpectedly rose in August.

“If the recent economic recovery is unsustainable, it is still possible for the Chinese authorities to cut interest rates further,” Sun added, expecting monetary easing in the fourth quarter. 52