1-year LPR held at 3.1%, 5-year at 3.6%
87% of market expects no change
Cautious approach amid US-China trade tensions
The Loan Prime Rate (LPR), which serves as China's benchmark interest rate, has been kept unchanged for the sixth consecutive month. CNBC, an American economic media outlet, pointed out that this cautious approach comes amid heightened tensions resulting from the US-China trade war.
The People's Bank of China, the country's central bank, announced on the 21st that it would maintain the one-year LPR, which serves as the standard for general loans, at 3.1%, and the five-year LPR, which serves as the benchmark for mortgage loans, at 3.6%. These rates have remained at the same levels since October of last year.
In China, each month, 20 major commercial banks submit their interest rates?determined based on their own funding costs and risk premiums?to the National Interbank Funding Center. The People's Bank of China reviews and consolidates these submissions before officially announcing the LPR. Although a separate benchmark interest rate exists, the authorities have left it unchanged for a long time, making the LPR the de facto benchmark for commercial banks.
This move aligns with market expectations. Previously, Reuters reported that, in a survey of 31 market experts, 27 respondents (87%) expected the LPR to remain unchanged this month, while 4 predicted a 0.1 to 0.15 percentage point reduction in the five-year LPR.
China, which set this year's economic growth target at "around 5%"?the same as last year?is facing challenges in maintaining growth momentum due to a combination of sluggish domestic demand, a downturn in the real estate sector, and an ongoing tariff war with the Donald Trump administration in the United States.
At the end of last year, the Central Economic Work Conference and this year's "Two Sessions" (the National People's Congress and the Chinese People's Political Consultative Conference) established "more proactive fiscal policy"?including raising the fiscal deficit ratio and increasing the issuance of special local government bonds?and "appropriately accommodative monetary policy," such as lowering the reserve requirement ratio and interest rates, as the economic direction for this year.
Li Qiang, Premier of the State Council and China's top economic policymaker, presided over a roundtable discussion with domestic economic experts and entrepreneurs on the 9th, stating, "This year presents rather unique circumstances. We must clearly recognize that external shocks are exerting certain pressures on the stable operation of our economy," suggesting the possibility of additional stimulus measures. Both the People's Bank of China and the Communist Party's official newspaper, People's Daily, have repeatedly conveyed that there is ample room for further cuts in interest rates and reserve requirements.
Some analysts suggest that, after China posted a first-quarter growth rate of 5.4%?once again surpassing expectations following the fourth quarter of last year?the authorities may be opting to delay a central bank rate cut for now, instead monitoring economic conditions while encouraging state-owned commercial banks to lower their lending rates.
There is also analysis that the Chinese government is exercising caution regarding interest rate cuts amid the current clash with the United States over high tariffs. Lowering the LPR could trigger a sharp depreciation of the yuan. According to CNBC, ING Bank stated, "Although there is room for further easing due to low inflation and deteriorating export conditions, the stability of the yuan is more important, so it is likely that China will wait for the US Federal Reserve to cut rates first."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
