The People’s Bank of China (PBOC) has made a strategic decision to uphold stability by maintaining the one-year loan prime rate (LPR) at 3.45% and the five-year LPR at 4.20% as of today (Sept. 20). This move aligns with market expectations following the PBOC’s recent decision on Wednesday (Nov. 15) to sustain the policy interest rate, prompted by concerns regarding potential pressures on the yuan.
China’s one-year LPR interest rate serves as a crucial benchmark for determining short-term loan interest rates, while the five-year LPR interest rate plays a pivotal role in setting long-term interest rates, notably for mortgages.
Furthermore, the PBOC chose to uphold the one-year medium-term lending facility(MLF), the country’s core policy interest rate, at 2.5% on Wednesday, Nov. 15. On the same date, a substantial liquidity injection of 1.45 trillion yuan (approximately $200 billion) was injected into the system via the MLF program, maintaining the interest rate at 2.5%.
The MLF interest rate stands as the standard rate that commercial banks must adhere to when borrowing funds from the People’s Bank of China, targeting a loan duration of 6 months to 1 year, thereby bolstering short-term liquidity for these banks.
This substantial injection of funds, the largest in nearly seven years, reflects the PBOC’s commitment to bolstering the domestic economic recovery and alleviating concerns regarding tight liquidity conditions. Simultaneously, both China’s central and local governments are preparing to issue additional bonds to infuse capital into the economy, intending to stimulate growth amid ongoing recovery efforts.