Chinese CB keeps the key rate steady

The interest rates that Chinese banks charge to their best customers have unexpectedly been kept the same. The majority of economists expected that the so-called Loan Prime Rate (LPR) would be lowered, so that companies could borrow more cheaply. This can limit the economic consequences of the coronavirus pandemic.

The lowest interest rate that Chinese companies can get for a one-year loan is 4.05 percent. The interest for a five-year loan remains at 4.75 percent. Economists thought of a small one-year rate cut of 0.05 or 0.1 percentage point.

The LPR rate is set monthly by eighteen banks and is loosely linked to the one-year bond rate charged by the China Central Bank. Despite remaining the same earlier this week, seven in ten economists thought the banks would tinker with their rates. The Federal Reserve in the United States and the Bank of England in the United Kingdom did use interest rates this week to make corporate loans cheaper.

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