China Freezes LPR... Possibility of Reserve Requirement Ratio Cut Remains

People's Bank of China Maintains 1-Year LPR at 3.7%
Calls for RRR Cut to Support Liquidity Supply

[Asia Economy Beijing=Special Correspondent Jo Young-shin] The People's Bank of China, the central bank of China, has kept the Loan Prime Rate (LPR), the benchmark interest rate, unchanged.

[Image source=Yonhap News]

On the 21st, the People's Bank of China announced that the 1-year LPR was recorded at 3.7%, the same as the previous month. The 5-year LPR was also maintained at 4.6%, the same level as the previous month.

Since the Central Economic Work Conference held in November last year, China has set an economic operation policy prioritizing "stability first," and lowered the LPR by 0.05 percentage points in December last year and by 0.10 percentage points in January this year.

Although the People's Bank of China has kept the LPR unchanged, the financial sector in China still anticipates the possibility of a reduction in the reserve requirement ratio (RRR).

The RRR refers to the mandatory cash reserve ratio that banks must hold at the central bank from the deposits received from customers. Therefore, when the RRR is lowered, the liquidity supply capacity of commercial banks increases. Typically, a 0.5 percentage point cut creates an additional capacity of 1.2 trillion yuan (approximately 233 trillion KRW). The People's Bank of China lowered the RRR by 0.5 percentage points in both July and December last year.

Won Bin, chief researcher at Minsheng Bank, said, "The government work report this year proposed an actual reduction in loan interest rates and fees by financial institutions," adding, "Commercial banks need to find ways to steadily increase loan support in accordance with such government policy demands going forward."

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