PBoC keeps the neutral stance unchanged - UOB

FXStreet reports that economist at UOB Group Ho Woei Chen, CFA, reviewed the latest interest rate decision by the PBoC.

“The People’s Bank of China (PBoC) kept its Loan Prime Rate (LPR) unchanged in August with the 1Y LPR and the 5Y & above LPR set at 3.85% and 4.65% respectively. Today’s move marks the fourth consecutive month that the PBoC has stayed on hold, setting a new record for the longest stretch that it has kept rates steady since the LPR reform in August 2019.”

“The decision is in line with market’s expectation as the PBoC had kept the 1Y medium-term lending facility (MLF) rate which the LPR is anchored to, unchanged at 2.95% on Monday. Furthermore, the uptrend in domestic interbank rates since June due to tightened liquidity and better economic outlook, has also reduced the prospect of banks cutting their lending rates.”

“Despite holding off further rate cuts, the central bank signaled that it will continue to maintain ample market liquidity.”

“China's Cabinet on Monday had also repeated its long-held policy stance to guide lending rates lower while avoiding “flood-like” stimulus. As such, we still see prospect for a slight downward trajectory in the benchmark 1Y LPR to 3.75% by end-2020 even as the odds of rate cuts are diminishing as the economy stabilises.”