Chinese Banks Maintain Lending Rates After PBOC Policy Rate Hold

(Bloomberg) -- China’s commercial lenders held their benchmark lending rates steady on Monday, in line with the central bank’s decision earlier this month to maintain policy rates in favor of other means to support stimulus spending. 

The one-year loan prime rate was held at 3.45%, in line with the forecasts from almost every economist surveyed by Bloomberg. The five-year rate, a reference for mortgages, was kept at 4.2%, according to the People’s Bank of China. That also broadly matched expectations. 

The loan rates are based on the interest rates that 18 banks offer their best customers, and are published by the PBOC monthly. They are quoted as a spread over the central bank’s one-year policy rate, or the medium-term lending facility rate. 

The central bank kept that rate unchanged last week following cuts in June and August. Instead, policymakers chose to pump the most cash into the financial system since late 2016 through its one-year loans. That was intended to help meet liquidity needs spurred by Beijing’s move to support the economy via an unusual sale of sovereign bonds. 

The PBOC faces constraints on its ability to cut policy rates further due to pressures on the yuan and capital outflows. Profit margins of banks have also been narrowing, posing another limit. Deposit rates have declined at a slower pace than lending rates in recent years. 

The outsized cash injection sparked discussion over whether the central bank will still cut the reserve requirement ratio for banks — which determines the amount of cash lenders need to keep in reserve — before the end of the year. Citigroup Inc. economists have said last week’s move may mean the RRR cut is delayed into 2024.

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