[Asia Economy Beijing=Special Correspondent Kim Hyun-jung] China has kept its Loan Prime Rate (LPR), which serves as the benchmark interest rate, unchanged. Although there were expectations that the rate would be cut again following August to address the prolonged real estate slump, authorities appear to have decided to maintain the rate due to concerns that an expanding interest rate spread with the United States could accelerate capital outflows.
On the 21st, the People's Bank of China, the central bank, announced that the 1-year LPR would remain at 3.65%, and the 5-year LPR, which serves as the benchmark for mortgage loans, would be set at 4.3%.
Previously, the market had anticipated that the authorities would lower the 5-year LPR to respond to the prolonged real estate downturn. In fact, the People's Bank of China cut the 5-year LPR three times this year?in January, May, and August. The 1-year LPR was also lowered in December last year, January this year, and August. However, since then, both the 1-year and 5-year LPRs have been held steady for three consecutive months in September, October, and November.
This decision seems to reflect concerns that deviating too far from the global monetary policy trend of interest rate hikes could lead to market turmoil, including capital outflows and a decline in the value of the yuan. With further rate hikes in the United States expected, a widening interest rate gap could worsen the situation.
Meanwhile, the People's Bank of China recently reported in its third-quarter monetary policy implementation report that lending rates are steadily declining. The weighted average interest rate on corporate loans in September was around 4.0% per annum, which is a 0.59% decrease compared to the previous year.
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