[Herald Economy] Reporter Jeong Mok-hee: China’s de facto benchmark lending rate, the Loan Prime Rate (LPR), has been frozen for the sixth consecutive month as expected by the market.
On the 21st, the People’s Bank of China announced that the one-year LPR, which serves as the benchmark for general loans, will remain at 3.1%, and the five-year LPR, which serves as the benchmark for mortgage loans, will remain at 3.6%. This decision aligns with market expectations.
In China, 20 major commercial banks submit interest rates to the Interbank Market Clearing House each month, considering their own funding costs and risk premiums. The People’s Bank of China reviews and announces the compiled LPR.
Although there is a separate benchmark interest rate, it has remained unchanged by authorities for quite some time, making the LPR the effective benchmark rate for banks.
Since lowering the five-year LPR from 3.85% to 3.6% and the one-year LPR from 3.35% to 3.1% in October last year, China has maintained these levels.
Earlier, Reuters reported that a survey of 31 market experts found that 27 respondents (87%) expected the LPR to remain unchanged this month, while four predicted a reduction of 0.1-0.15 percentage points for the five-year LPR.
China has set this year’s economic growth target at around ‘5%’, similar to last year. As it faces domestic demand and real estate slumps, along with trade tensions with the Trump administration, the country is deliberating on how to sustain growth.
At the end of last year, the Central Economic Work Conference and this year’s Two Sessions (National People’s Congress and Chinese People’s Political Consultative Conference) established ‘more active fiscal policies’ such as increasing the fiscal deficit rate and issuing more local government special bonds, along with ‘appropriately relaxed monetary policies’ including cuts in reserve requirements and interest rates as this year’s economic direction.
Li Qiang, the Premier of the State Council and China’s economic leader, chaired a meeting on the 9th with domestic economic experts and entrepreneurs. He acknowledged the special circumstances this year, noting that external shocks are exerting pressure on the stable operation of the Chinese economy, hinting at the possibility of additional stimulus measures.
Both the People’s Bank of China and the People’s Daily, the Communist Party’s official newspaper, continue to express that there is ample room to lower interest rates and reserve requirements.
Some speculate that given China’s first-quarter growth rate, which exceeded the expectation of 5.4% following the fourth quarter of last year, the authorities might be inclined to postpone a central bank rate cut and instead focus on trimming rates through major state-owned banks while monitoring economic conditions.