The People’s Bank of China (PBOC) has decided to maintain the one-year and five-year Loan Prime Rate (LPR) at 3.65% and 4.30% respectively, in line with market expectations.
The one-year LPR rate serves as a benchmark for private sector lending rates, while the five-year LPR rate is an indicator of household interest rate direction, including mortgage loans.
Most analysts had predicted that the PBOC would keep the LPR rates unchanged during its latest decision. This follows the PBOC’s announcement on April 17, where it injected 170 billion yuan through a one-year Medium-Term Lending Facility (MLF) program at an interest rate of 2.75%, remaining unchanged from the previous month. The MLF interest rate has now remained unchanged for eight consecutive months.
Earlier this year, the PBOC also made its first cut to the commercial banks’ reserve ratio requirement (RRR), in an effort to increase liquidity in the banking system and reduce funding costs for businesses, while stimulating economic recovery.
The PBOC reduced the RRR by 0.25% for all financial institutions, effective from March 27, except for those financial institutions that already have a reserve level of 5%. This move was aimed at boosting liquidity in the market and supporting economic growth.
The decision to maintain the LPR rates and the previous RRR cut are part of the PBOC’s efforts to balance the need for economic recovery while managing risks associated with inflation and financial stability. The central bank will continue to closely monitor economic conditions and adjust its policies accordingly to support sustainable and balanced economic growth.