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China keeps lending benchmark LPR steady for fourth straight month, in line with market

FILE PHOTO: A man wearing a mask walks past the headquarters of the People's Bank of China, the central bank, in Beijing, China, as the country is hit by an outbreak of the new coronavirus, February 3, 2020. REUTERS/Jason Lee

SHANGHAI (Reuters) - China kept its benchmark lending rate for corporate and household loans steady as expected for the fourth straight month at its August fixing on Thursday.

The one-year loan prime rate (LPR) CNYLPR1Y=CFXS was kept unchanged at 3.85%, while the five-year LPR CNYLPR5Y=CFXS remained at 4.65%.

Most new and outstanding loans are based on the LPR, while the five-year rate influences the pricing of mortgages.

Twenty-eight traders and analysts out of 31 participants in the snap survey conducted by Reuters this week had predicted no change to the either rates.

The rate decision came after the People’s Bank of China (PBOC) injected more fresh liquidity through its medium-term lending facility (MLF) on Monday, while keeping borrowing costs unchanged for the fourth straight month.

MLF, one of the PBOC’s main tools in managing longer-term liquidity in the banking system, serves as a guide for the LPR.

The PBOC said in its second quarter monetary policy report published earlier this month that lending costs in the real economy were significantly lower, tracking downward adjustments to the LPR. And size of declines were greater than cuts to the LPR. One-year LPR was lowered by 20 basis points in Q2.

July activity data released last week also suggested China’s economic recovery remains on track but may have lost some momentum, with retail sales continuing to contract.

The LPR is a lending reference rate set monthly by 18 banks. The PBOC revamped the mechanism to price LPR in August 2019, loosely pegging it to the MLF rate.

Reporting by Winni Zhou and Andrew Galbraith; Editing by Shri Navaratnam

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