China unexpectedly keeps benchmark lending rate unchanged
China on Monday unexpectedly kept unchanged its new benchmark lending rate, suggesting Beijing is keen to avoid overly loosening monetary policy for fear it may push up already-high debt levels across the economy.
The one-year Loan Prime Rate LPR remained at 4.20 percent, steady from the previous monthly fixing. The five-year LPR was fixed at 4.85 percent, unchanged from September. A Reuters poll last week had forecast the rate would be cut again following reductions in August and last month.
Frances Cheung, head of Asia macro strategy at Westpac in Singapore, said Monday’s decision does not point to an end to the downward adjustment in the LPR. “That said, the outcome is likely to reinforce the somewhat risk-on sentiment today,” Cheung said.
“Looking ahead, we still see each monthly LPR re-set as providing an opportunity for a baby-step reduction.”
Investors in China’s financial markets took the rate decision in stride. Benchmark 10-year treasury futures for December delivery CFTZ9, the most-traded contract, were barely moved after the data release.
A separate Reuters poll of 83 analysts showed that the central bank is expected to slash the one-year LPR to 4.00 percent by the end of 2019, down by 20 basis point from its current level.
The decision to keep the LPR steady came just days after China reported its third-quarter gross domestic product (GDP) growth cooling to near 30-year low.
Economists and China observers say a recent bath of weak data showing a further loss of momentum in the world’s second-biggest economy underlined the need for further monetary policy support.
A bruising 15-month long Sino-US trade dispute was also one of the key factors fueling the easing expectations. US President Donald Trump has outlined the first phase of a deal to end a trade war and suspended a threatened tariff hike, though officials on both sides said much more work needed to be done.
