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UOB Group’s Economist Ho Woei Chen, CFA, evaluates the recent decision by the PBoC to keep interest rates unchanged at its February event.

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 in February. This was the 10th straight month that the central bank held rates steady after its last cut in April 2020. The move was in line with PBoC’s decision to keep its 1-year medium-term lending facility (MLF) rate unchanged at 2.95% last Thursday (18 Feb).”

“Looking ahead, the combination of economic growth recovery and asset price inflation will be met with increasing vigilance from the PBoC. However, with growth recovery remaining uneven and some slowdown in economic activities at the start of the year as well as subdued consumer price inflation so far, we continue to see the need for supportive economic policies, including an accommodative monetary policy, at least in the near-term. As such, we expect the PBoC to keep its benchmark LPR steady through 2021 even though the degree of policy accommodation could be fine-tuned to adjust to the growth and inflation conditions.”

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