(Photo: REUTERS/Tingshu Wang)
The People's Bank of China (PBOC) announced that it had left its benchmark lending rate unchanged for two months in a row. It matched market expectations after the PBOC kept borrowing costs on medium-term loans stable last work.
The one-year loan prime rate (LPR) stayed at 3.85 percent, the same range from last month's fixing. The five-year LPR also remained at 4.65 percent from May. The one-year LPR policy affects the price lenders fixing on corporates and households for the acquisition of loans. The five-year rate, on the other hand, affects the pricing of mortgages offered in banks.
Last week, a Reuters survey involving traders and analysts showed that most of the respondents expect China to maintain its lending benchmark for the month of June. Only 20 percent of the respondents forecasted that there would be a marginal cut to the one-year LPR.
The PBOC, however, rolled over some maturing medium-term loans last week. It also maintained the interest rates for the second straight month since May. The medium-term lending facility (MLF) has been one of the PBOC's primary tools in managing longer-term liquidity in China's banking system. It has been the guide for establishing a new LPR. The interest rate for the one-year MLF also remained at 2.95 percent.
The LPR has been used as a lending reference rate that is decided per month by 18 banks. The PBOC also revamped its mechanism to price LPR accordingly in 2019. It has loosely pegged it into the MLF rate.
Shares in Asia were mixed when the announcement came. Investors watched for a market reaction to the rising number of cases in both the US and Beijing, but the loan prime rate was not changed under the circumstances.
The Japan Nikkei closed lower at 0.18 percent with 22,437.27. The Topix index also decreased by 0.23 percent at 1,579.09. South Korea's Kospi also dropped by 0.68 percent at 2,126.73. Similarly, Hong Kong's Hang Seng index also dipped by 0.75 percent during the final hour of trading. Shares of Chinese tech giant Alibaba fell by more than two percent, while mainland China stocks were mixed during the trading day. The Shanghai composite also performed lower at 2,965.27.
The Shenzhen composite was the only Asian stock that increased by 0.294 to 11,702.44. In Australia, the S&P/ASX 200 also closed above the flatline at 5,944.50. According to the head of economics and strategy at Mizuho Bank Vishnu Varathan, the global economy is grappling with conflict and investor confidence remains uncertain. The rise in cases has caused these investors to watch closely and have been reluctant over the number of rising pandemic cases both in the US and China.
