LPR Unchanged for Three Consecutive Months
Move Aligns with Market Expectations
During the 2019 US-China summit, US President Donald Trump (left) and Chinese President Xi Jinping. Photo by Reuters
The People's Bank of China, the country's central bank, has kept the Loan Prime Rate (LPR), which serves as a benchmark interest rate, unchanged for the third consecutive month. With the US-China tariff war entering a 90-day truce, it appears that the Chinese government has gained some breathing room.
On August 20, the People's Bank of China announced that it would maintain the one-year LPR, which serves as the benchmark for general loans, at 3.0% per annum, and the five-year LPR, which serves as the benchmark for mortgage loans, at 3.5% per annum.
In China, each month, 20 major commercial banks submit interest rates to the interbank funding center, taking into account their own funding costs and risk premiums. The People's Bank of China then reviews and consolidates these rates to determine and announce the LPR.
Although an official benchmark interest rate exists, the authorities have left it unchanged for a long time, so the LPR effectively serves as the benchmark rate for commercial banks.
Last October, China cut both the one-year and five-year LPRs by 0.25 percentage points each to stimulate the economy. In May of this year, as downward pressure on the economy increased due to the tariff war with the second Trump administration in the United States, both rates were further reduced by 0.1 percentage points each.
This move is in line with market expectations. Reuters noted that the decision to keep the LPR unchanged "demonstrates the People's Bank of China's preference for targeted policies to support specific sectors of the economy, rather than relying on monetary easing." The report added, "With the United States and China agreeing to extend the tariff truce by 90 days, trade tensions have eased, reducing the urgency for additional economic stimulus."
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