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MNI BRIEF: PBOC Maintains Loan Prime Rates for 13th Month

PBOC left corporate borrowing benchmarks unchanged for 13th month.

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China's central bank on Thursday left its key loan rates unchanged for the 13th month even as the factory-gate price last month jumped to a more-than-3-year high.

The Loan Prime Rates (LPR), the benchmark that sets companies' costs of borrowing, remain 3.85% for one-year loans and 4.65% for the five-year. The move was within the market's expectation as the People's Bank of China left the Medium-Term Lending Facility rate at 2.95% on May 17. The LPRs are linked to the one-year MLF, closer to market rates.

China's PPI in April rose 6.8% y/y, or 0.9% from March, the National Bureau of Statistics said last week.

The PBOC has kept the scale of its daily open market operations (OMOs) modest since March 1, injecting on most days CNY10 billion. It has drained a total of CNY20 billion from the inter-bank market via OMOs in May and has rolled over CNY10 billion via MLF this month.

Bond traders have told MNI that the liquidity condition in the money market has been loose for most of the days this month given the small issuances of local government bonds. However, drops in both M2 and total social finance (TSF) in April have raised concerns for marginal tightening.

Since the LPR reform in August 2019, the PBOC has shaved 46 bps off the one-year LPR and 20bps off the five-year. In April 2020, after seeing a 6.8% contraction in Q1 GDP, the PBOC cut the one-year LPR by 20 bps and the five-year by 10 bps, the biggest since the August 2019 LPR reform.