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China central bank keeps reference rate for new loans unchanged

The People's Bank of China left its reference point for new loans unchanged following a 5-basis-point cut in November.

The central bank maintained the one-year loan prime rate at 4.15% and the five-year rate at 4.80%.

The loan prime rate acts as the reference point for interest rates on new loans granted by banks and is linked to the medium-term lending facility, which sets the cost of the loans that the PBoC offers to the country's lenders.

The central bank last month lowered the one- and five-year rates by 5 basis points each. The decision to keep the rates on hold now signals that the central bank "didn't feel the need to use window guidance to pressure banks into submitting lower quotations" and points to a pause rather than the end of its easing cycle, said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note.

"With strains on corporate balance sheets still intensifying and economic activity likely to cool further in the first half of 2020, we think the PBoC will step up the pace of rate cuts before long. We expect the [loan prime rate] to decline 50 basis points next year as a result."