China Keeps De Facto Benchmark LPR Frozen for 9th Month...1-Year at 3.0%, 5-Year at 3.5%

The People's Bank of China kept the Loan Prime Rate (LPR), which effectively serves as the benchmark interest rate, unchanged for the ninth consecutive month on the 24th.

The People's Bank announced that it would maintain the 5-year LPR, which serves as the benchmark for mortgage loans, at 3.5%, and the 1-year LPR, which serves as the benchmark for general loans, at 3.0%.

People's Bank. Yonhap News

The market had largely expected the rate to be held steady again this month. In a recent survey conducted by Reuters of 22 experts, all respondents predicted a freeze.

The People's Bank, facing mounting pressure to introduce stimulus measures amid tariff tensions with the Donald Trump administration in the United States, cut both the 5-year and 1-year LPRs by 0.1 percentage point last May for the first time in seven months. Since then, it has kept the rates unchanged for nine consecutive months through this month.

China's annual gross domestic product (GDP) growth rate reached 5% last year, but its fourth-quarter growth was only 4.5%. Reuters has previously projected that China's economic growth could slow to 4.5% this year.

With investment and consumer sentiment weakening, the market expects the Chinese authorities to implement additional monetary easing this year to support economic growth. However, some analysts argue that there is limited room to cut the LPR in the first quarter.

Analysts at Tianfeng Securities said, "The People's Bank of China still has room to cut the reserve requirement ratio (RRR) and policy rates, and is using this as a tool to guide market expectations," adding, "There is a possibility of additional rate cuts this year, but it is difficult to pinpoint the timing, and the likelihood of a rate cut in the first quarter is limited."

China calculates the LPR each month by aggregating the lending rates submitted by 20 major commercial banks, which reflect their own funding costs and risk premiums. Although a separate official benchmark rate exists, it has not been adjusted for a long time, so the LPR effectively functions as the benchmark interest rate.