The Chinese Central Bank Did Not Change Its Main Interest Rates

The Chinese Central Bank Did Not Change Its Main Interest Rates

As expected, the Chinese central bank did not change its main interest rates seven times in a row. People's Bank of China (PBOC) left the 1-year loan prime rate (LPR) at 3.85% and the 5-year LPR at 4.65%. PBOC last reduced these rates in April, when the 1-year rate fell by 20 basis points and the 5-year rate fell by 10 basis points. LPR rates are fixed monthly on the basis of proposals from 18 banks, although Beijing has influence over their setting. These new rates replaced the traditional key PBOC rate in August 2019. As the PBOC did not change the Medium Term Loan Rate (MLF) earlier this month, it was generally assumed that the LPR rates would not change either. The world's second largest economy continues to recover. In the third quarter, the pace of its expansion accelerated to 4.9% from 3.2% in the second quarter. In addition, fiscal stimulus is expected to continue. As a result, PBOC is gradually focusing on growth and is once again focusing more on financial risks and moral hazard, Capital Economics economists said. And while the next step for the PBOC is likely to be an increase in LPR, the bank's vice-governor's current statements signal that he will not rush. Capital Economics economists predict that the PBOC will raise interest rates by 30 basis points in 2021.