THE central bank kept the benchmark lending rate steady for the third straight month yesterday, matching market expectations, amid signs that the world’s second-largest economy is recovering from the shock coronavirus pandemic.

The one-year loan prime rate (LPR) was kept unchanged at 3.85 percent, while the five-year LPR remained at 4.65 percent.

Most new and outstanding loans are based on the LPR, while the five-year rate influences the pricing of mortgages.

Thirty-four out of 36 participants in a recent survey had expected no adjustment to LPR in July after the People’s Bank of China (PBOC) kept borrowing cost on medium-term lending facility (MLF) unchanged last week.

MLF, one of the PBOC’s main tools in managing longer-term liquidity in the banking system, serves as a guide for the LPR.

The interest rate on one-year MLF loans to financial institutions also stayed unchanged at 2.95 percent for three straight months.

Against the backdrop of improving economic data, analysts and economists said policymakers have started to shift away from powerful, emergency monetary easing to more targeted schemes to help areas of the economy that are still struggling. Policymakers are also concerned that too much stimulus could stoke more debt and financial risks.

Official data showed China’s economy grew 3.2 percent in the second quarter from a year earlier, faster than the 2.5 percent expected by analysts, as lockdown measures ended and policymakers ramped up stimulus after a record, virus-induced contraction early in the year.

The LPR is a lending reference rate set monthly by 18 banks. The PBOC revamped the mechanism to price LPR in August 2019, loosely pegging it to the MLF rate.

China’s housing market is showing signs of recovery and analysts warn that there could be a property bubble and the central bank may adjust mortgage rates to rein in the market.

Deutsche Bank in a note last week warned that the current environment of large fiscal stimulus and high credit growth “historically have led to property market overheating.”

Japanese bank Nomura, too, warned of a “potential property bubble” in a latest note. It cited rising property price inflation across 70 Chinese cities, inching up 0.6 percent month on month in June, up from 0.5 percent in May. The number of cities experiencing “sequentially higher” prices also rose from 57 to 61, it said.

“Recently announced tightening measures by some local housing authorities, including in Shenzhen and Ningbo, reflected rising policymaker concerns over a potential property bubble,” Nomura wrote.

(SD-Agencies)