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China keeps lending benchmark unchanged

By Philip Smith

Loan prime rate kept the same after concerns that a cut could fuel already-high debt levels

China keeps lending benchmark unchanged

China has kept its new benchmark lending rate unchanged in an unexpected move that suggests the government 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 4.2 per cent. The five-year LPR was fixed at 4.85 per cent, unchanged from September, reports Reuters.

The decision was the third since the People’s Bank of China unveiled the new lending benchmark, which is set by 18 banks. The move came as a surprise; a Reuters poll last week had forecast the rate would be cut to four per cent following reductions in both August and September.

Frances Cheung, head of Asia macro strategy at Westpac in Singapore, said the decision does not mean the constant downward adjustment in the LPR is coming to an end. However, the decision came just days after China reported its third-quarter gross domestic product growth cooling to a near 30-year low.

The government relies on fiscal stimulus to combat the current downturn and previously announced trillions of yuan in tax cuts and special local government bonds to finance infrastructure projects.

China’s economic growth could decrease further in 2020, even though the global economy is likely to pick up pace, projects the International Monetary Fund.

In its World Economic Outlook report, the IMF said the Chinese economy could grow 5.8 per cent next year — slower than the 6.1 per cent forecast for 2019. China grew 6.6 per cent last year.

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