China Keeps 'Effective Benchmark Rate' LPR Unchanged for 12th Month... 1-Year at 3%, 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 twelfth consecutive month on May 20.
On this day, the People's Bank of China announced that the five-year LPR, which serves as the standard for mortgage loans, will remain at 3.5%, while the one-year LPR, which serves as the benchmark for general loans, will stay at 3.0%.
The market had largely anticipated a freeze this month as well. Previously, a Reuters survey of 24 experts found that every respondent expected the LPR to remain unchanged in May.
The People's Bank of China lowered both the five-year and one-year LPR by 0.1 percentage points in May last year, its first adjustment in seven months, under growing pressure for economic stimulus due to tariff conflicts with the U.S. administration of Donald Trump. Since then, the rates have been kept steady for twelve consecutive months through this month.
China is facing rising energy costs and sluggish domestic demand following the outbreak of war in Iran. On May 18, China released figures showing that both industrial production and retail sales for April fell short of expert expectations and slowed down. Industrial production increased by 4.1% year-on-year, marking the lowest level since July 2023, while retail sales grew by only 0.2%. The Consumer Price Index (CPI) and Producer Price Index (PPI) rose by 1.2% and 2.8%, respectively.
TD Securities commented, "We expect the People's Bank of China to be more cautious about cutting rates to stimulate the economy following the recent surge in the PPI," adding, "This could reflect a more concerning inflationary environment."
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Each month, China calculates the LPR by aggregating the lending rates set by 20 major commercial banks, taking into account their own funding costs and risk premiums. While there is a formal benchmark interest rate, the authorities have not adjusted it for a long time, so the LPR has effectively taken its place as the policy rate.
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