China has maintained its Loan Prime Rate (LPR), which serves as the de facto benchmark interest rate, for the 14th consecutive month, in line with market expectations.
The People's Bank of China, the country's central bank, announced today (July 20) that it will keep the 1-year LPR, which serves as the benchmark for general loans, at 3.0%, and the 5-year LPR, the reference for mortgage loans, at 3.5%.
In China, 20 major commercial banks submit interest rates to the interbank funding center each month, taking into account their own funding costs and risk premiums. The central bank then reviews and announces the compiled LPR.
Although a separate official benchmark rate exists, the authorities have not adjusted it for a long period, making the LPR the de facto benchmark for commercial banks.
Market experts had previously predicted that China would maintain its LPR freeze this month.
Reuters reported on July 17 that a survey of 23 market participants showed that all respondents expected China to keep the LPR unchanged.
Amid prolonged sluggish domestic demand, China recorded an economic growth rate of 4.3% in the second quarter of this year, falling short of market expectations.
This is the lowest level since the fourth quarter of 2022, when the Chinese economy was hit hard by the spread of COVID-19, recording 2.9%.
The country is also experiencing a K-shaped divergence, where strong performance in exports and manufacturing contrasts with stagnation in domestic demand and investment.
However, market experts believe that despite these conditions, the Chinese authorities are not yet at a stage to implement broad accommodative monetary policies.
The Bank of Korea's Beijing office stated in a report last month that, despite weakness in consumption and investment, the robust growth in exports and high-tech manufacturing has meant that the need for economic stimulus through monetary policy has not been significantly highlighted in the market.
The report further predicted that considering the growing expectations of a U.S. Federal Reserve rate hike within the year and the low net interest margins of Chinese commercial banks, the Chinese authorities are likely to maintain a wait-and-see approach under their existing accommodative stance for the time being.
Some observers suggest that there is still a possibility of future rate cuts, as China may announce new monetary and fiscal policy directions related to boosting domestic demand at the Politburo meeting of the Communist Party of China, which is typically held in late July to set the economic course for the second half of the year.