China leaves cost of borrowing unchanged

China left two core benchmark interest rates unchanged on Monday, a move widely-expected following recent cuts.

The People’s Bank of China kept the one-year loan prime rate (LPR) at 3.7%, following cuts of 5 and 10 basis points in December and January respectively. The five-year LPR, meanwhile, was left at 4.6%. It was last trimmed by 5 basis points in January.

The LPR is the cost of lending for banks’ highest-quality borrowers, although it also acts as a reference rate for other lending. The five-year rate is a proxy for the cost of mortgage lending.

Craig Botham, chief China+ economist at Pantheon Macroeconomics, said: "Chinese monetary policy remains a game of quantity rather than price, for the most part.

"Key policy rates provide a poor and partial window onto the monetary cycle. Liquidity injections are more informative, but so far this month are also disappointing for those hoping for aggressive easing; February has seen a net withdrawal to date."

Iris Pang, chief economist, Greater China, at ING, said: "The PBoC did not cut rates, even though bond defaults are on the rise again after the Chinese New Year holidays.

"This rise in default rates could result in increases in credit costs in the bond market, which will feed back to the loans market. If the PBoC continue to stay on the sidelines for another month, because they want to see the effects of earlier policy changes, they will leave themselves behind the curve, which is not ideal for the current economic situation."

ING is forecasting a cut of between 5 and 10 basis points in March for the one-year LPR, but potentially "no, or only a tiny change" to the five-year rate.

Last week China's central bank also left borrowing costs unchanged on its medium-term lending facility (MLF) loans.