China Holds Interest Rates Steady... 1-Year LPR Remains Unchanged for 6 Months (Comprehensive)

1-Year Maturity 3.7%, 5-Year Maturity 4.45%
Risk of Widening Interest Rate Gap with the US, Inflation Pressure, Concerns over Real Estate Speculation Expansion

[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. Despite the Chinese economy growing by only 0.4% year-on-year in the second quarter, no monetary policy measures were taken.

Photo by Xinhua News Agency Capture

On the 20th, the People's Bank of China announced that the 1-year LPR and the 5-year LPR for this month were recorded at 3.7% and 4.45%, respectively, the same as the previous month. The 1-year LPR has been unchanged for six consecutive months since February, while the 5-year LPR, which affects mortgage loans, has been frozen for two consecutive months since May.

Nominally, the LPR is a figure compiled from the loan rates of the top customers of 10 designated banks, but in China, all financial institutions must use it as a standard for loan operations, so it effectively functions similarly to a benchmark interest rate.

Despite the decline in growth rate due to lockdowns, the prevailing view was that Chinese financial authorities would not lower interest rates. Concerns over the risk of dollar capital outflows due to the widening interest rate gap with the United States, inflationary pressures, and fears of renewed real estate speculation led to the dominant expectation that the People's Bank of China would refrain from using monetary policy.

Additionally, Chinese authorities have expressed their intention to use fiscal policy more actively than monetary policy. They judged that if quantitative easing were used to stimulate the economy, the side effects such as inflation could be greater.

For this reason, voices within the Chinese financial sector are calling for the government to raise the national fiscal deficit target of 2.8%. Along with this, there are opinions that the issuance scale of local government special bonds should be increased beyond the original 3.65 trillion yuan.

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