THE central bank yesterday unexpectedly kept unchanged its new benchmark lending rate, suggesting China is keen to avoid overly loosening monetary policy for fear it may push up already-high debt levels across the economy.

The one-year Loan Prime Rate (LPR) remained at 4.20 percent, steady from the previous monthly fixing. The five-year LPR was fixed at 4.85 percent, unchanged from September.

A poll last week had forecast the rate would be cut again following reductions in August and last month.

Frances Cheung, head of Asia macro strategy at Westpac in Singapore, said yesterday’s decision does not point to an end to the downward adjustment in the LPR.

“That said, the outcome is likely to reinforce the somewhat risk-on sentiment today,” Cheung said.

“Looking ahead, we still see each monthly LPR re-set as providing an opportunity for a baby-step reduction.”

A separate poll of 83 analysts showed that the central bank is expected to slash the one-year LPR to 4 percent by the end of 2019, down by 20 basis point from its current level.

Yesterday’s fixing was the third since the People’s Bank of China (PBOC) unveiled the new lending benchmark, which is set by 18 banks.

The new LPR is linked to the rate on PBOC’s medium-term lending facility (MLF), which is determined by broader financial system demand for central bank liquidity. The one-year MLF rate, last cut in February 2016, now stands at 3.3 percent.

(SD-Agencies)