People’s Bank of China (PoBC) left the loan prime rate (LPR), its latest benchmark rate, unchanged 4.2 percent in October - Photo by PoBC Office

JAKARTA (TheInsiderStories) – People’s Bank of China (PoBC) left the loan prime rate (LPR), its latest benchmark rate, unchanged 4.2 percent in October, following two consecutive cuts in the prior two months. At the same time, the central bank has set the Renmimbi (RMB) reference rate at 7.0752 versus 7.0668 on Tuesday.

In order to offset the impact of earlier peak period for tax payment and to maintain reasonably adequate liquidity in the banking system, the Bank conducts reverse repo operations of RMB200 billion by interest rate bidding today. The repo has interest rate 2.25 percent.

Since May, the PoBC unleashes RMB250 billion into the financial system through the reverse repurchase agreement in its biggest open market operation. The move came after official reports showed last week China’ third-quarter growth missed forecasts and slowed to 6 percent, the slowest quarterly pace since 1992.

In an official statement released on Tuesday (10/23), director-general of the monetary policy department, Ruan Jianhong, said since the beginning of 2019, in line with the arrangements of the Communist Party of China Central Committee and the State Council, the PoBC has stuck to a sound monetary policy.

Overall, he noted, the liquidity in the banking system is reasonably adequate, money, credit and aggregate financing to the real economy (AFRE) have seen moderate growth, and market interest rates have been in stable operation.

According to preliminary statistics, he explained, the AFRE growth in September was RMB2.27 trillion, expanding by RMB138.3 billion year on year. At end-September, outstanding AFRE reached RMB219.04 trillion, rising by 10.8 percent year on year, 0.2 percentage points higher than a year earlier, he adds.

Turning to foreign exchange reserves and the exchange rate, at end-September, China’ foreign exchange reserves stood at US$3.09 trillion, and the US Dollar versus CNY exchange rate was 7.0729.

PoBC spokesperson Sun Guofeng revealed, currently, the PoBC is working hard to promote the use of LPR, and the proportion of LPR as the reference rate is gradually rising.

The central bank expect progressive development characterized by,”385”, which means for large banks, the proportion of new loans using LPR as the reference rate should reach 30 percent in this September, 50 percent by the fourth quarter, and over 80 percent by the first quarter of 2020.

“I believe that with the rising proportion of LPR application in new loans and our efforts to proceed the shift of pricing reference for existing loans in the future, the benchmark lending rate will smoothly phased out,” he stated.

Guofeng added, the LPR announced on August 20 and September 20 stepped down slightly. According to him, the reform has proved to be effective.

“We will make greater headway in this regard in the future,” said the official.

Since early 2019, PBoC injected the largest amount of money RMB560 billion (US$82.84 billion) to stimulate the slowdown economy. Recently the country’ economy moved lackadaisically, impacted by its trade war with the United States.

PBoC stated, that the injection of funds was done to maintain adequate bank liquidity and anticipating the high funding needs during the peak tax payment season.

Prime Minister Li Keqiang has warned, China must prepare for difficulties this year as the economy faces increasing pressure. The country aims to keep economic growth within a reasonable range in 2019, he added.

To that, Li revealed, the government will boost investment in public services and infrastructure and expand consumption. Furthermore, the National Development and Reform Commission, said China will strengthen monitoring of its economic situation and improve its economic policies.

The world’ second-biggest economy slowed in 2018 caused the trade war, painful long-term structural adjustments to transition, and exports unexpectedly fell the most in two years in December.

by Linda Silaen, Email: linda.sllaen@theinsiderstories.com