China central bank to maintain prudent policy to prevent inflation from spreading
In its third quarter monetary policy report, the People’s Bank of China (PBOC) also said it was studying plans to switch the benchmark rate for existing loans to the new loan prime rate (LPR).
China’s economic growth for the third quarter tumbled to its slowest pace in nearly three decades, under pressure from slowing global demand and the ongoing trade war between China and the United States.
At the same time, China’s consumer inflation has quickened to a near eight-year high of 3.8%, driven in part by soaring pork prices as a result of an outbreak of African Swine Fever in the country, posing a dilemma for the central bank.
“The PBOC is increasingly concerned about rising CPI inflation and inflation expectations,” economists at Nomura said in a note on Friday, saying those risks may incline policymakers to lower profile easing measures in the near term.
The PBOC had unexpectedly made a 200 billion yuan ($28.60 billion) liquidity injection earlier in the day.
Despite the higher inflation rates the central bank is expected to lower the LPR next Wednesday, for the third time since it was introduced in August.
The introduction of the LPR – a lending benchmark for new bank loans to households and businesses - is part of a broader packet of reforms the central bank is exploring to reduce corporate borrowing costs in the world’s second-largest economy.
In Saturday’s report, the PBOC reiterated that it would continue to significantly lower real interest rates through reforms.
It said the weighted average lending rate fell 4 basis points in the third quarter to 5.62%.
The PBOC also said that it would strengthen counter-cyclical adjustments in light of the rising downward pressure on the economy.