The People's Bank of China has kept its benchmark interest rates unchanged for the 17th consecutive month, despite significant domestic economic challenges.
On October 20, the central bank announced that it would maintain the one-year loan prime rate (LPR) at 3.00% and the five-year LPR at 3.50%. The LPR serves as the de facto benchmark interest rate in China, influencing general loans and long-term borrowing, such as mortgages. This decision aligns with market expectations, as all 22 economists surveyed by Reuters prior to the announcement predicted a freeze on both the one-year and five-year LPR.
China's domestic market continues to struggle with stagnation. While there are calls for interest rate cuts to stimulate domestic demand and revive the sluggish housing market, the People's Bank has opted to maintain rates.
In the third quarter, China's GDP growth rate was 4.5% year-on-year, surpassing market forecasts. This gives authorities some leeway to observe the effects of existing policies rather than rushing into further rate cuts. Additionally, concerns remain that lowering rates could exacerbate depreciation pressures on the yuan or further harm banks' profitability.
Dongfang Jincheng, a major asset management firm in China, noted that the People's Bank's seven-day reverse repurchase agreement rate remains at 1.40%, indicating no direct changes to prompt a reduction in the LPR. With banks' net interest margins near historical lows, there is little incentive to lower the LPR spread further. The monetary authority is likely to consider economic growth and financial market conditions while monitoring the effectiveness of current policies before deciding on any rate adjustments.
* This article has been translated by AI.
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