The building of the People’s Bank of China in Beijing Photo: VCG

China’s central bank on Friday surprised the market with its decision to keep its benchmark lending rate steady in March, despite a global race to cut rates amid the coronavirus pandemic. 

China’s effective virus containment allows the country more leverage when it comes to the deployment of conventional monetary ammunition, market watchers said, noting that the nation has more monetary leeway than its global peers to cushion its economy from the coronavirus fallout. 

The People’s Bank of China, the country’s central bank, set the one-year loan prime rate (LPR) at 4.05 percent, level with the previous monthly fixing. The five-year LPR was also unchanged at 4.75 percent. 

The LPR, based on a weighted average of lending rates from 18 banks, is announced on the 20th day of every month.

The steady LPR rates came after the central bank kept the interest rate of its medium-term lending facility (MLF) loans unchanged on Monday, falling short of market expectations of further monetary easing amid a global round of interest rate cuts.

The Bank of England, the UK’s central bank, announced on Thursday that it would slash its main interest rate to an all-time low of 0.1 percent. 
The US Federal Reserve made an emergency rate cut on Sunday that lowered its funds rate to near zero. The Fed also launched a $700 billion quantitative easing program, citing the coronavirus outbreak that has disrupted economic activity in many countries. 

China has been ahead of its global peers in terms of its counter-cyclical monetary and fiscal policies, said Wu Jinduo, head of fixed income at the research institute of Great Wall Securities. 

"China has already experienced the virus spread, the peak of the disease, and has reached a turning point in its coronavirus battle, while there are still no signs of peaking - not to mention a turning point - in developed countries," she told the Global Times on Friday, speaking of China’s virus containment basis for monetary fine-tuning that sees the country stand apart from the rest of world. 

That the latest MLF and LPR quotations were unchanged from the previous fixings doesn’t suggest China’s central bank is tightening its monetary policy, Wu noted, citing a targeted reserve requirement cut last week that pumped 550 billion yuan ($77.6 billion) into the virus-hit economy, one among a mix of financing policies to keep the interest rate at a low level.

The nation continues to maintain reasonable and ample liquidity, and its benchmark rates and reserve requirement ratios are both higher than those in developed economies, meaning China has more monetary leeway than developed nations mired in liquidity traps and zero or even negative interest rates, the analyst remarked, noting that whether or not China moves to cut rates is contingent upon its first-quarter economic performance.

China’s central bank still has relatively wide scope to make broad and targeted reserve requirement cuts, Shanghai Securities News reported Friday, citing Ma Jun, an external advisor to central bank monetary policy committee.

Global Times