(Yicai) Feb. 20 -- China's central bank kept its benchmark lending rate unchanged for the fourth straight month, as the market anticipated. Experts said there is still potential for reductions in the loan prime rate over the long term.

The People’s Bank of China held the one-year LPR at 3.1 percent today, compared with 3.45 percent a year earlier, and the five-year LPR at 3.6 percent, versus 3.95 percent a year ago. Chief economists polled earlier by Yicai did not expect any cuts.

The rates are used for new bank loans to businesses and households. They are calculated based on a weighted average of lending rates submitted by a panel of commercial banks, which reflect the cost of funds they acquire through the interbank market.

A report by Xinhua Finance explained the PBOC's decision to hold steady. The seven-day reverse repurchase rate, which forms the pricing basis for the LPR, remained stable while net interest margins at banks stayed low, giving lenders little incentive to lower their LPR quotations.

The central bank also kept the LPR steady to stabilize the exchange rate and prevent interest rate risks, the report said.

Several analysts noted that the need for short-term monetary easing has declined as the nation's economic fundamentals show signs of stabilization. Fourth-quarter gross domestic product rose 5.4 percent year on year, surpassing the previous quarter’s 4.6 percent increase, after China rolled out stimulus policies in the third quarter of last year.

The US Federal Reserve has put the brakes on rate cuts, and uncertainties remain around the US-China interest rate spread and exchange rates, said Ming Ming, chief economist at Citic Securities. The offshore yuan has largely fluctuated around 7.3 versus the US dollar since December, limiting the urgency and feasibility of LPR rate cuts this month, he said.

Dong Ximiao, chief researcher at Merchants Union Consumer Finance, warned that rapid LPR reductions could widen the rate spread and increase currency swings, adding that any cuts in the lending benchmark are unlikely in the short term.

Dong noted that if policy rates and deposit rates continue to fall, banks' funding costs will decline, which could lead to lower LPR quotations. But the market should not have overly high expectations regarding the extent of LPR and other interest rate cuts.

Dong expects the PBOC to further improve the deposit reserve requirement system, potentially breaching the implicit 5 percent lower limit of the reserve requirement ratio, enabling it to play a bigger role in policy regulation.

Cuts in interest rates and the RRR are still possible, though interest rate cuts face greater constraints, and the self-discipline mechanism is expected to play a larger role, noted Wen Bin, chief economist at China Minsheng Bank.

Editor: Emmi Laine