China moves to support small firms, while keeping loan rates unchanged

China’s State Council announced on Monday that the country will offer nearly 1 trillion yuan ($157 billion) in tax rebates to small businesses, as part of broad efforts to stabilize the Chinese economy amid rising downward pressure.

At a State Council Executive meeting, Premier Li Keqiang also outlined more comprehensive measures for stabilizing market expectations and ensuring the stable development of the capital markets.

Meanwhile, the People’s Bank of China (PBC), the central bank, refrained from further loan rate cuts on Monday. The PBC kept its benchmark interest rates for corporate and household lending unchanged on Monday, with the one-year loan prime rate (LPR) held at 3.70 percent, while the five-year LPR remained at 4.60 percent.

The five-year LPR is a benchmark for home mortgages. China lowered LPR rates in January.

The decision was somewhat of a surprise for market watchers. Economists, analysts and traders surveyed last week by Reuters found that just over half of the respondents expected China to keep both rates unchanged, amid calls for more easing.

The move also followed a pledge by China’s top financial affairs watchdog last Wednesday to stabilize economic growth and capital markets. The meeting helped stall a stock market fall. Last week, the PBC refrained from cutting its one-year medium-term lending facility (MLF) rate.

However, the PBC may be holding off on LPR cuts for a more critical moment, analysts said, while it assesses efforts to lower borrowing costs for smaller businesses that are under pressure from the epidemic and watches closely the impact of rising commodity prices.