China's 'De Facto Benchmark Rate' LPR Frozen for 5 Months... 1-Year at 3.1%, 5-Year at 3.6%

The People's Bank of China announced on the 20th that it will keep the Loan Prime Rate (LPR), which serves as a de facto benchmark interest rate, unchanged.

The 5-year LPR, which serves as the benchmark for mortgage loans, will be maintained at 3.6%, and the 1-year LPR, which serves as the benchmark for general loans, will be kept at 3.1%.

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The LPR is calculated by aggregating the loan rates offered to the best customers by 18 designated banks. Although there is a separate benchmark interest rate, the authorities have not adjusted it for a long time, and since local financial institutions base their lending on the LPR, it effectively functions as the benchmark interest rate.

The People's Bank of China has kept the LPR unchanged for five months after lowering it by 0.25 percentage points in October last year to stimulate the economy.

This decision to keep the rate unchanged aligns with market expectations. Reuters reported that 29 out of 33 market experts (88%) anticipated the LPR would remain steady.

In December last year, at the Central Economic Work Conference, China announced a shift from a "moderate monetary policy" stance to an "appropriately accommodative monetary policy" for this year, emphasizing the need to lower reserve requirement ratios and interest rates to maintain liquidity. This stance was continued at this year's Two Sessions (Lianghui), China's largest political event, with the market closely watching for any changes in monetary policy timing.

The market views the People's Bank of China's interest rate decisions as dependent on the future trade policies of U.S. President Donald Trump. Bloomberg reported that the authorities are expected to offset the impact of U.S. tariff increases through monetary and fiscal stimulus measures in the coming months.