Chinese banks maintain benchmark lending rates as yuan slides

CHINESE banks maintained their benchmark lending rates for the second month, after the central bank put monetary easing on hold amid a weakening yuan.

The one-year loan prime rate (LPR) was left at 3.65 per cent, according to a statement by the People’s Bank of China (PBOC) on Thursday (Oct 20). Fifteen of the 16 economists surveyed by Bloomberg had expected the rate to remain unchanged. The rate was last cut by five basis points in August.

The five-year rate, a reference for mortgages, was also maintained at 4.3 per cent. It was forecast to be kept on hold, according to almost all analysts who gave an estimate.

The LPRs are based on the interest rates that 18 banks offer their best customers and is published by the People’s Bank of China monthly. They are quoted as a spread over the central bank’s rate on its one-year policy loans, known as the medium-term lending facility, which has been kept unchanged since a surprise reduction in August.

The PBOC’s announcement followed several unexplained delays in economic releases this week during the Communist Party’s twice-a-decade congress. The statistics office postponed the release of the third-quarter gross domestic product report a day before it was scheduled to be released on Tuesday.

The central bank on Thursday set the daily reference rate for the yuan at the strongest bias on record versus the average estimate in a Bloomberg survey of analysts and traders after surging Treasury yields and a selloff in US-listed Chinese equities weighed on the currency. The widening divergence between the Federal Reserve’s aggressive interest rates hikes and the PBOC’s monetary easing stance has fuelled capital outflows and the yuan’s depreciation against the dollar this year.

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Investors have lowered their expectation for further monetary easing in recent weeks as the yuan tumbled. The PBOC may delay a cut to the reserve requirement ratio, or the share of cash banks must put in reserves, to November as the liquidity gap is small currently, the Shanghai Securities News reported this week. BLOOMBERG