CHINESE banks maintained their benchmark lending rate for a 10th straight month, as pressure on the yuan restricts policymakers’ space for easing.

The one-year loan prime rate (LPR) was maintained at 3.45 per cent, according to a statement from the People’s Bank of China (PBOC) on Thursday (Jun 20), in line with most economists surveyed by Bloomberg.

The five-year rate, a reference for long-term loans including mortgages, was maintained at 3.95 per cent.

The LPRs are based on the interest rates that 20 banks offer their best customers. They are quoted as a spread over the central bank’s one-year policy rate, or the medium-term lending facility rate, which the PBOC left unchanged for the 10th month earlier this week.

The central bank is holding interest rates because lowering them would widen China’s policy divergence with the Federal Reserve, which is expected to keep rates higher for longer and exacerbate the pressure on the yuan.

However, weak borrowing demand and the economy’s longest deflationary streak since the 1990s make the case for lower borrowing costs to stimulate demand.

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PBOC governor Pan Gongsheng stoked speculation the LPR would be lowered in the coming months on Wednesday when he said in a speech that some banks’ quotes of the rate significantly deviated from the actual best lending rate they offer to clients.

Lenders may need to correct that by lowering the LPR by 10 to 20 basis points, likely in the second half of this year, Societe Generale economists wrote in a note on Wednesday. BLOOMBERG

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