China Keeps Benchmark Interest Rates Unchanged for 17th Consecutive Month... 1-Year at 3.0%, 5-Year at 3.5%

China has maintained its status quo on the Loan Prime Rate (LPR), which serves as its de facto benchmark interest rate, for the 17th consecutive month.

China's central bank, the People's Bank of China, announced today (October 20) that it will maintain the 1-year LPR, which serves as the benchmark for general loans, at 3.0%, and the 5-year LPR, which serves as the benchmark for mortgage loans, at 3.5%.

In China, 20 major commercial banks submit interest rates considering their own funding costs and risk premiums to the interbank funding center every month, and the People's Bank of China reviews and announces the compiled LPR.

Although a separate benchmark interest rate exists, authorities have left it untouched for a long period, making the LPR effectively function as the benchmark interest rate for commercial banks.

Market experts had forecasted that China would maintain its stance of freezing the LPR this month as well.

Reuters reported on October 19 that a survey of 22 market participants showed all respondents expected China to freeze the LPR.

China set its economic growth target for this year at "4.5% to 5.0%," which is lower than last year's "around 5%."

The growth rate for the first quarter of this year recorded 5.0%, but the second-quarter growth rate dropped to 4.3% amid sluggish domestic demand.

This marks the lowest level since the fourth quarter of 2022.

Meanwhile, the third-quarter growth rate announced the previous day came in at 4.5%, slightly exceeding market expectations, bringing the cumulative growth rate for the first to third quarters to 4.6%.

At a meeting chaired by General Secretary Xi Jinping in late July, the Political Bureau of the Communist Party of China Central Committee pointed out the direction of the economy for the second half of the year, including enhancing the intensity and effectiveness of macroeconomic policies, promoting domestic demand through fiscal and monetary cooperation, and maintaining a more proactive fiscal policy and appropriately accommodative monetary policy stance.

However, market experts view that the possibility of China actively cutting interest rates is not high.

The Bank of Korea Beijing Office stated in a report last month, compiling recent market evaluations, that "due to recent interest rate hikes in major economies, China's room for rate cuts is limited, and the prevailing opinion is that the focus in the second half of the year will be on enhancing the effects of existing policies and adjusting and strengthening structural monetary policy tools rather than cutting the reserve requirement ratio (RRR) and policy rates."

A Beijing diplomatic source explained, "The Communist Party of China is discussing measures to boost domestic demand, and there are talks that additional domestic demand policies will be rolled out during the second half of the year."
(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.