[Asia Economy Reporter Kim Suhwan] China has effectively kept its Loan Prime Rate (LPR), which functions as the benchmark interest rate, unchanged for 16 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 16 months since it was cut by 0.20 percentage points (for the 1-year term) in April last year, when COVID-19 was at its peak.
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, essentially serves as the benchmark interest rate. The LPR is calculated as the average loan rate for the best customers reported by 18 commercial banks in China, adding bank funding costs and risk premiums to the 1-year Medium-term Lending Facility (MLF) rate.
Previously, experts anticipated a high likelihood that the People's Bank of China would keep the LPR unchanged.
Currently, China is facing inflationary pressures due to rising raw material prices. As a result, domestic consumer sentiment is also weakening.
Due to the rise in raw material prices, China's Producer Price Index (PPI) increased by 9.0% in July. This marks a return to 9% after two months, following the highest level in 13 years at 9% recorded in May.
Additionally, the Consumer Price Index (CPI) rose by 1% year-on-year, exceeding the expected 0.8%.
Given these negative economic signals both domestically and internationally, it is analyzed that the People's Bank of China had no choice but to keep the LPR unchanged.
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