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Economist at UOB Group Ho Woei Chen, CFA, reviews the latest monetary policy decision by the People’s Bank of China (PBoC).

Key Quotes

“The People’s Bank of China (PBoC) kept its Loan Prime Rate (LPR) unchanged with the 1Y LPR and the 5Y & above LPR set at 3.85% and 4.65% respectively today. This is the 11th straight month that the central bank held rates steady after its last cut in April 2020. The move is in line with PBoC’s decision to keep its 1Y medium-term lending facility (MLF) rate which the LPR is pegged to, unchanged at 2.95% last Monday (15 March).”

“Governor Yi Gang’s comments at the China Development Forum on Saturday reaffirms monetary policy objective of balancing support to the economic growth and financial risks prevention. He said that China’s monetary policy is in a normal range and has room to provide liquidity. Bottom-line is that the central bank will not abruptly withdraw support and will continue to prioritise resources towards the small and micro businesses.”

“For 2021, the PBoC targets growth of M2 money supply and total social financing to be in line with nominal GDP growth. Credit growth had remained robust in Jan-Feb but we maintain expectation for the new CNY loans growth to taper in the coming months to slightly above 12% from 12.8% in December 2020. While loans growth is set to moderate this year, we continue to expect the 1Y LPR to stay flat at 3.85% for the rest of 2021.”