China leaves loan rates steady for 17th consecutive month

SHANGHAI: China maintained its benchmark lending rates unchanged for the 17th consecutive month in October, in line with market expectations. Policymakers appear content to avoid immediate monetary easing after a robust third-quarter GDP performance, instead focusing on refining loan pricing methods and enhancing the impact of monetary policy.

The one-year loan prime rate (LPR) remained at 3.00 percent, and the five-year LPR stayed steady at 3.50 percent. All 22 market participants surveyed by Reuters on Monday predicted no changes to these rates.

China's central bank is contemplating switching its primary policy rate to the overnight reverse repurchase rate to better align monetary policy support with economic needs. People's Bank of China governor Pan Gongsheng announced on Monday that the bank would provide policy guidance to advance developments in loan pricing benchmarks, moving away from a narrow dependence on the LPR to a more diversified mix.

Large corporations may have the flexibility to use either the overnight reverse repo rate or the LPR for floating-rate loans, while the overnight rate could also serve as an alternative benchmark for bonds and financial derivatives, according to Pan.

The Chinese economy expanded 4.5 percent year-on-year in the third quarter, outpacing expectations and alleviating the need for Beijing to accelerate support measures to meet its annual growth goal. Huatai Securities noted that the latest rate announcement continues the gradual migration of the policy rate anchor toward asset-side pricing, keeping large firms on a separate track while other entities remain linked to the LPR.

This tiered approach aims to prevent a sudden disruption to the existing pricing system. As more corporate loans become tied to the overnight repo rate, its fluctuation range is expected to narrow, boosting liquidity stability.