China Keeps De Facto Benchmark LPR Unchanged for Seventh Consecutive Month as Expected

Same as Reuters Survey

On the 10th, customers were shopping at a large supermarket in Taizhou City, Jiangsu Province, China. Photo by Xinhua News Agency

China has kept its one-year and five-year loan prime rates (LPR), which effectively serve as benchmark interest rates, unchanged for the seventh consecutive month.

According to Reuters and CNBC, the People’s Bank of China announced on the 22nd that it would maintain the one-year LPR, which serves as the benchmark for general loans, at 3.0%, and the five-year LPR, which serves as the benchmark for mortgage loans, at 3.5%.

The market had widely anticipated a freeze this month as well, with all 25 experts surveyed by Reuters predicting no change. The fact that the key seven-day reverse repo rate also remained unchanged further supported these expectations.

In China, the LPR is calculated based on rates submitted by major commercial banks. Since the benchmark rate has not been adjusted for a long period, the LPR has effectively served as the benchmark interest rate in the market.

Amid sluggish domestic demand and a downturn in the real estate sector, China lowered the LPR by 0.25 percentage points in October last year, and then by an additional 0.1 percentage points in May this year, as the US-China tariff conflict persisted. However, the rates have been held steady since then.

Nevertheless, there are growing expectations that a certain level of additional rate cuts will be inevitable next year. This is because, at the recent Central Economic Work Conference, China identified expanding domestic demand as its top economic policy priority for next year and stated its intention to utilize monetary policy tools such as lowering the reserve requirement ratio and interest rates.

Despite government efforts to boost consumption, domestic demand indicators remain sluggish. In November, the retail sales growth rate was only 1.3% year-on-year, falling far short of market expectations and marking a slowdown for the sixth consecutive month. Even during the large-scale discount event known as "Double Eleven," there were no clear signs of a recovery in consumption.