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China leaves lending benchmarks unchanged as expected

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SHANGHAI — China kept its benchmark lending rates unchanged at a monthly fixing on Tuesday, in line with expectations, as authorities appeared to hold off immediate monetary easing following recent rapid yuan declines.

The one-year loan prime rate (LPR) was kept at 3.65%, while the five-year LPR was unchanged at 4.30%.

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In a Reuters poll conducted this week, 21 out of 28 respondents, or 75% of all participants, predicted no change to either rate.

The steady LPR fixings came after the People’s Bank of China (PBOC) last week left its medium-term policy rate unchanged, while draining some liquidity from the banking system.

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Analysts said policymakers are carefully striking a balance between supporting a slowing economy and not creating new economic risks.

Beijing’s widening policy divergence with most other major economies, which are raising interest rates aggressively to tame inflation, has piled pressure on the currency and limited room to further maneuver monetary easing.

China cut key interest rates in August, as Beijing boosted efforts to revive an economy hobbled by a property crisis and a resurgence of COVID-19 cases.

But the rate cuts accelerated yuan’s declines. It has lost about 4% to the dollar since mid-August, breaching the psychologically important 7 per dollar mark and prompting capital outflow risks.

The LPR, which banks normally charge their best clients, is set by 18 designated commercial banks who submit proposed rates to the PBOC every month.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages. (Reporting by Winni Zhou and Brenda Goh; Editing by Sam Holmes)

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