| Consensus | Actual | Previous | |
|---|---|---|---|
| 1-Year Rate – Change | 0bp | 0bp | -10bp |
| 1-Year Rate – Level | 3.45% | 3.45% | 3.45% |
| 5-Year Rate – Change | 0bp | 0bp | 0bp |
| 5-Year Rate – Level | 4.20% | 4.20% | 4.20% |
Highlights
The People's Bank of China left the one-year loan prime rate unchanged at 3.45 percent at its monthly review, in line with the consensus forecast. This rate was cut by 10 basis points last month. The equivalent five-year rate was also left on hold at 4.20 percent.
Today's decision to leave these rates on hold follows the release earlier in the month of data showing some improvement in key activity indicators in August. Officials characterised that data as indicating"accelerated recovery" and also noted improved demand and stable prices. Recent house price data have also showed signs of stabilisation in the property market, though conditions remain subdued.
Today's decision to leave these rates on hold follows the release earlier in the month of data showing some improvement in key activity indicators in August. Officials characterised that data as indicating"accelerated recovery" and also noted improved demand and stable prices. Recent house price data have also showed signs of stabilisation in the property market, though conditions remain subdued.
Market Consensus Before Announcement
The People's Bank of China is expected to hold its loan prime rates unchanged in September, at 3.45 percent for the 1-year and 4.20 percent for the 5-year.
Definition
The one-year Loan Prime Rate is a new policy rate set by the People’s Bank of China that is used by domestic banks as a reference for the lending rates they offer to their most creditworthy clients. This rate was previously based on the official benchmark rate that required the approval of China’s State Council to be changed but is now based on the PBOC’s medium-term lending facility, which can be changed without the State Council’s approval. New bank loans are now priced relative to the Loan Prime Rate.
Description
The People’s Bank of China determines interest rate policy at its policy meetings. These meetings occur on or around the 20th of each month and market participants speculate about the possibility of an interest rate change. The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.
