China Keeps Benchmark LPR Unchanged for 16 Months Amid Economic Slowdown Concerns (Comprehensive)

[Asia Economy Reporter Kim Suhwan] Amid growing concerns that the pace of economic slowdown will accelerate toward the end of the year, China has kept its Loan Prime Rate (LPR), which effectively serves as the benchmark interest rate, unchanged for the 16th consecutive month.

On the 20th, the People's Bank of China announced the 1-year and 5-year LPRs at 3.85% and 4.65%, respectively, the same as the previous month. The LPR has remained at this level for 16 months since it was cut by 0.20 percentage points (for the 1-year term) in April last year, when the COVID-19 pandemic peaked.

The LPR, announced by the People's Bank of China and used by all financial institutions in China as the benchmark for corporate and household loans, functions as a de facto benchmark interest rate. It is calculated as the average lending rate offered to top-tier customers by 18 commercial banks in China, adding bank funding costs and risk premiums to the 1-year Medium-term Lending Facility (MLF) rate.

The Chinese government has been implementing economic policies aimed at removing long-term risk factors in its economy, such as reducing debt, moving away from COVID-19 stimulus measures.

However, concerns are growing that the economic slowdown in the second half of the year may be faster than expected due to the recent surge in raw material prices, heavy rain damage in Henan Province and other areas, and the nationwide resurgence of COVID-19.

The manufacturing PMI (Purchasing Managers' Index) recorded 50.4 in July, the lowest since February last year when the COVID-19 outbreak shocked the economy. Additionally, recently released key economic indicators such as industrial production and retail sales all fell short of market expectations.

In its monetary policy report for the second quarter released on the 9th, the People's Bank of China assessed that its monetary policy has returned to pre-COVID-19 pandemic levels and indicated that it will finely adjust the intensity of monetary policy according to domestic and international economic conditions going forward.

This content was produced with the assistance of AI translation services.