The People's Bank of China. [The Herald Business DB]
The People's Bank of China. [The Herald Business DB]

China held its loan prime rate (LPR) — which functions in effect as the country's benchmark interest rate — for the 14th consecutive month, as markets had expected.

The People's Bank of China (PBOC) announced Monday that it would keep the one-year LPR, which serves as the reference rate for general loans, at 3.0%, and the five-year LPR, the benchmark for mortgage loans, at 3.5%.

In China, 20 major commercial banks submit rates each month to an interbank lending center, factoring in their own funding costs and risk premium. The PBOC then reviews and publishes the compiled LPR. While a separate official benchmark rate exists, authorities have left it untouched for so long that the LPR effectively functions as the benchmark rate for commercial banks.

Market experts had forecast that China would maintain the freeze this month as well. Reuters reported Friday that all 23 market participants it surveyed expected China to leave the LPR unchanged.

China posted second-quarter GDP growth of 4.3% this year, missing market forecasts amid a prolonged slump in domestic demand. That was the weakest reading since the fourth quarter of 2022, when the economy took a severe hit from the spread of COVID-19. The country continues to see a "K-shaped divergence," with strong exports and manufacturing on one side and weak domestic consumption and investment on the other.

Market experts say Chinese authorities are not yet at the stage of rolling out broad-based accommodative monetary policy, however, despite the challenging conditions.

The Bank of Korea's Beijing office said in a report last month that markets see little pressing need to stimulate the economy through monetary policy, given robust growth in exports and advanced manufacturing even as consumption and investment remain weak.

The office added that authorities are likely to maintain a wait-and-see stance for now within their existing accommodative framework, given growing expectations that the Federal Reserve will raise interest rates this year and the persistently low net interest margins of Chinese commercial banks.

Some observers note that the possibility of a future rate cut remains open, as the Communist Party Central Politburo — which typically sets the economic direction for the second half of the year at its late-month meeting — could signal a new monetary and fiscal policy stance on stimulating domestic demand at this month's session.


yckim6452@heraldcorp.com