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China kept a benchmark lending rate unchanged on Friday, defying expectations for a reduction with the economy jolted by the coronavirus pandemic although policymakers will likely need to loosen lending rates soon to free up funds.
The one-year loan prime rate (LPR) was left unchanged at 4.05% from the previous monthly fixing while the five-year LPR remained at 4.75%.
The surprise helped prop up the yuan against the dollar, following heavy selling this week, as the interest rate gap between China and the United States remained wide, following the Federal Reserve's surprise policy easing last weekend.
The LPR is a lending reference rate set monthly by 18 banks. The PBOC revamped the mechanism to price LPR in August, loosely pegging it to the medium-term lending facility rate, or MLF.
The central bank left borrowing cost on its one-year MLF loans unchanged on Monday, which would ordinarily suggest the LPR would similarly remain unchanged.
A majority of traders and analysts in a Reuters poll had expected the rate, which is used to price new loans, to come down given the massive co-ordinated stimulus unleashed by global central banks this week.
The fact that it did not suggests authorities are broadly comfortable with the current policy settings for now, analysts said, after the central bank last week cut the amount of reserves commercial banks are required to hold.

Copyright Reuters, 2020

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