China sets 1 and 5 year LPR rates unchanged, as expected

1-year Loan Prime Rate 3.45%

• expected and prior of 3.45%

5-year Loan Prime Rate 3.95%

• expected and prior 3.95%

• the 5-year was cut in February: PBoC’s largest 5 year LPR rate cut ever. The 5-year is a benchmark for mortgage rates in China and a big part of the reasoning behind the PBoC cut was support for the deeply troubled property sector.

Last week the MLF rate was set unchanged, this is usually (not always) a reliable guide that LPR rates will remain unchanged. That didn’t happen in February. Last month the MLF was unchanged but we got that big cut to the 5-year LPR.

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The PBOC’s Loan Prime Rate (LPR):

• Its an interest rate benchmark used in China, set by the People’s Bank of China each month on the 20th.
• The LPR serves as a reference rate for banks when they determine the interest rates for (primarily new) loans issued to their customers.
• Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.
• Its calculated based on the interest rates that a panel of 18 selected commercial banks in China submit daily to the PBOC.
  • The panel consists of both domestic and foreign banks, with different weights assigned to each bank’s contributions based on their size and importance in the Chinese financial system.
  • The LPR is based on the average rates submitted by these panel banks, with the highest and lowest rates excluded to reduce volatility and manipulation. The remaining rates are then ranked, and the median rate becomes the LPR.

This article was written by Eamonn Sheridan at www.forexlive.com.