[Asia Economy Reporter Kim Suhwan] China has effectively kept its loan prime rate (LPR), which functions as the benchmark interest rate, unchanged for 15 consecutive months.
On the 20th, the People's Bank of China announced the 1-year and 5-year LPR at 3.85% and 4.65%, respectively, the same as the previous month. The LPR has remained at this level for 15 months since it was lowered by 0.20 percentage points (for the 1-year term) in April last year, when COVID-19 was at its peak.
Earlier, experts had predicted that the People's Bank of China would keep the LPR unchanged this time as well.
The LPR announced by the People's Bank of China, which all financial institutions in China use as a benchmark for corporate and household loans, effectively serves as the benchmark interest rate. The LPR is calculated as the average of the best loan rates reported by 18 commercial banks in China, adding bank funding costs and risk premiums to the 1-year Medium-term Lending Facility (MLF) rate.
Currently, China is facing increasing inflationary pressure due to rising raw material prices, while domestic consumer sentiment is also being suppressed.
Due to the rise in raw material prices, China's Producer Price Index (PPI) increased by 8.8% in June.
Given these negative economic signals both domestically and internationally, it is interpreted that the People's Bank of China found it burdensome to raise the LPR.
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