PBOC Keeps 'De Facto Benchmark Rate' LPR Unchanged for 7 Consecutive Months

The People's Bank of China, the country's central bank, has kept the Loan Prime Rate (LPR), which effectively serves as the benchmark interest rate, unchanged for the seventh consecutive month.

On the 20th, the People's Bank of China announced that the 1-year and 5-year LPRs for March remain at 3.65% and 4.3% per annum, respectively, the same as the previous month. This marks the LPR holding steady for seven months since August of last year.

The LPR is an average rate calculated by aggregating the lending rates offered to the best customers by 18 designated banks. However, in practice, the People's Bank of China decides the rate considering overall conditions, and financial institutions within China use it as a lending benchmark, effectively making it the benchmark interest rate. The 1-year LPR applies to general loans, while the 5-year LPR is the standard for mortgage loans. The 1-year LPR was cut twice last year, in January and August, and the 5-year LPR was lowered three times in the same year, in January, May, and August.

Some had anticipated a possible LPR cut by the People's Bank of China this month. Bloomberg News particularly expected that China, transitioning to a "with-COVID" approach this year, might implement accommodative monetary policies such as interest rate cuts to normalize the economy. In fact, on the 17th, the People's Bank of China reduced the reserve requirement ratio applied to commercial banks by 0.25 percentage points. Lowering the reserve requirement ratio reduces banks' funding costs and increases liquidity supplied to the market.