The PBoC rate setting is coming up on Monday – will likely remain on hold

<p>The People's Bank of China sets its Loan Prime Rate (LPR) for the one- and five-years on Monday January 21. </p><ul><li>Due at 0115 GMT, which is 9.15 pm US Eastern time.</li></ul><p>The LPR plays a vital role in determining interest rates for loans and mortgages in China.</p><p>Current LPR rates are:</p><ul><li>3.45% for the one year</li><li>4.20% for the five year</li></ul><p>Earlier this week the Medium-term Lending Facility (MLF) rate was left unchanged:</p><ul><li><a href="https://www.forexlive.com/centralbank/peoples-bank-of-china-left-its-mlf-rate-unchanged-recap-20240115/" target="_blank" rel="follow" data-article-link="true">People's Bank of China left its MLF rate unchanged – recap</a></li></ul><p>The MLF rate was expected to be cut by 10bp. It wasn't a unanimous expectation, but given China seems in need of added fiscal and monetary stimulus a 10bp cut was seen coming. But, nope. With the MLF left unchanged expectations are that LPRs will be left unchanged also. </p><p>I posted a couple of weeks ago the view on why the People's Bank of China is going to find cutting rates difficult:</p><ul><li><a href="https://www.forexlive.com/centralbank/why-the-peoples-bank-of-china-cant-ease-the-economic-headwinds-away-20240108/" target="_blank" rel="follow" data-article-link="true">Why the People's Bank of China can't ease the economic headwinds away</a></li></ul><p>—</p><p>The PBOC's Loan Prime Rate (LPR):</p><ul><li>Its an interest rate benchmark used in China, set by the People's Bank of China each month on the 20th.</li><li>The LPR serves as a reference rate for banks when they determine the interest rates for (primarily new) loans issued to their customers.</li><li>Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.</li><li>Its calculated based on the interest rates that a panel of 18 selected commercial banks in China submit daily to the PBOC.<ul><li>The panel consists of both domestic and foreign banks, with different weights assigned to each bank's contributions based on their size and importance in the Chinese financial system.</li><li>The LPR is based on the average rates submitted by these panel banks, with the highest and lowest rates excluded to reduce volatility and manipulation. The remaining rates are then ranked, and the median rate becomes the LPR.</li></ul></li></ul>

This article was written by Eamonn Sheridan at www.forexlive.com.