People's Bank of China Keeps 'De Facto Benchmark Rate' LPR Unchanged... Continued 'Cautious Stance'

On the 20th, the People's Bank of China, the central bank of China, announced that it would keep the loan prime rate (LPR), which is effectively the benchmark interest rate, unchanged at 3.45% for the 1-year term and 3.95% for the 5-year term. This aligns with market experts' expectations.

The LPR is calculated by aggregating the loan rates for the best customers from 18 designated banks. Local financial institutions use this as a reference for lending, making it the de facto benchmark interest rate in China. The 1-year rate affects general loans, while the 5-year rate influences mortgage loans.

[Image source=Yonhap News]

The 5-year LPR has remained unchanged for three consecutive months since March, and the 1-year LPR has been steady for nine consecutive months since last September. On the 15th, the People's Bank of China froze the Medium-term Lending Facility (MLF) rate, signaling the LPR freeze.

China continues to struggle with sluggish domestic demand and remains under the shadow of recession concerns. According to the National Bureau of Statistics' announcement on the 17th, retail sales in China increased by only 2.3% in April, falling short of both the previous month's figure (3.1%) and the forecast (3.7%). Fixed asset investment grew by 4.2% from January to April this year, below the expected 4.6%. On the same day, housing prices in China fell by 3.1% in April, deepening the decline from the previous month (-2.2%). Industrial production, which reflects manufacturing trends, rose 6.7% year-on-year, surpassing both the forecast (5.5%) and the previous month's figure (4.5%).

Despite the ongoing real estate slump and weak consumption, the Chinese government is showing a cautious stance toward implementing aggressive economic stimulus policies. After releasing key economic indicators on the 17th, the National Bureau of Statistics stated, "New growth drivers are maintaining rapid growth, and the economy continues its recovery and improvement trend," and only emphasized the need to swiftly implement existing macroeconomic policies.