China keeps benchmark interest rates unchanged, as the market expected

China kept unchanged reference interest rates in the monthly fix on Friday, in line with market expectations, as a series of economic data suggests the economy is stabilizing and the weakness of the yuan limits further monetary easing.

The one-year prime rate (LPR) remained at 3.45%, while the five-year prime rate remained at 4.20%.

The data of the gross domestic product (GDP) and better-than-expected third-quarter retail sales suggest China’s economic recovery has begun to improve, needing less monetary support.

“Economic activity has stabilized and authorities can afford to wait a while before implementing further monetary easing measures in the future”say emerging markets analysts at TD Securities in an analysis note.

The bearish sentiment on the yuan was also seen as a factor against further rate cuts. The yuan has depreciated more than 5% this year against the dollar and increased liquidity would add additional pressure on the currency.

Most new and outstanding loans in China They are based on the one-year rate, while the five-year rate influences the price of mortgages.

In a Reuters poll of 29 analysts and market traders, almost all participants predicted no change in the LPR, while all expected the five-year rate to remain stable.

The stability of type of interest to five years is due to the decision taken on Monday by the central bank to renew maturing medium-term loans, leaving its interest rate unchanged.

The medium-term lending facility (MLF) interest rate serves as a guide for the LPR and is seen by markets as a precursor to any changes in lending benchmarks.

Although rates were left unchanged, the PBOC on Monday injected the biggest cash support since late 2020 to allow banks to expand credit at a time when financing conditions were tight due to strong bond supply and payment of taxes collected by the Government.

For the coming months, market participants do not rule out the possibility of a rate cut.

The economists of Barclays They foresee further cuts of 10 basis points in official interest rates in the fourth quarter and the first of next year, as deflation risks persist and domestic demand conditions remain weak.