China maintains stable LPR loan baseline for 6th consecutive month, as expected

SHANGHAI, Oct.20 (Reuters) – China maintained its benchmark rate on business and household loans for the sixth consecutive month when it was set in October on Tuesday, encouraged by a prolonged recovery in the world’s second-largest economy after the shock of the coronavirus.

The one-year loan prime rate (LPR) remained unchanged at 3.85%, while the five-year LPR remained at 4.65% – as widely expected by the market.

Most new and existing loans are based on the LPR, while the five-year rate influences mortgage pricing.

Twenty-five of 28 traders and analysts, or nearly 90%, in a snapshot Reuters poll had predicted no change for the LPR at one or five years.

The rate decision came after the People’s Bank of China (PBOC) kept borrowing costs on the Medium-Term Loan Facility (MLF) unchanged for the sixth consecutive month last week.

The MLF, one of the main tools of the PBOC in managing longer-term liquidity in the banking system, serves as a guide for the LPR.

Recent data points to improving economic fundamentals. Official data on Monday showed China’s economic recovery accelerated in the third quarter as consumers shed their caution over coronaviruses.

The LPR is a benchmark loan rate set monthly by 18 banks. The PBOC revamped the LPR pricing mechanism in August 2019, loosely pegging it to the MLF rate. (Report by Winni Zhou and Andrew Galbraith edited by Shri Navaratnam)

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