China holds loan prime rate steady for fifth month as economy reopens

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China holds loan prime rate steady for fifth month as economy reopens
Credit: © Reuters.

By Ambar Warrick 

Investing.com -- China held its benchmark lending rates at historical lows on Friday, with the government looking to spur a sharp economic recovery this year after the country marked a decisive pivot away from its strict zero-COVID policy.

The People’s Bank of China maintained its one-year loan prime rate (LPR) at 3.65%, while the five-year LPR, which is used to determine mortgage rates, was maintained at 4.30%.

The LPR is decided by the PBOC based on considerations taken from 18 designated commercial banks, and is in turn used as a benchmark by private banks in offering loans. 

Both short-term and long-term rates are at historic lows, with the PBOC moving to shore up liquidity conditions in an economy that is still reeling from the COVID-19 pandemic.

A lower five-year rate was also aimed at benefiting the country’s cash-strapped real estate sector.

Friday’s move was largely in line with a Reuters poll, and comes as China struggles to shore up economic growth in the face of its worst-yet COVID-19 outbreak. The government has also outlined a slew of spending measures to support growth. 

While the country began scaling back most of its strict anti-COVID restrictions in December, analysts have warned that rising infections could delay an economic recovery this year. 

Recent data showed that the world’s second-largest economy grew at a substantially slower pace in 2022 from the last year. But it performed better than expected in the fourth quarter of 2022 , indicating that the lifting of anti-COVID measures was bearing some fruit. 

The PBOC’s reluctance to move the LPR also comes as the central bank aims to maintain a balance between supporting economic growth and maintaining strength in the yuan . The currency had plummeted to 14-year lows after the central bank had unexpectedly cut the LPR in August.

But weakness in the dollar , coupled with expectations of smaller interest rate hikes by the Federal Reserve , saw the yuan mark a stellar recovery against the greenback in recent weeks.

Chinese stocks also rallied sharply on expectations that the economy will bounce back after the lifting of anti-COVID measures.

 

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