On May 20, the People’s Bank of China (PBOC) maintained the 1-year Loan Prime Rate (LPR) at 3% and the 5-year LPR at 3.5%. This marks the twelfth consecutive month that rates have been held steady, in line with market expectations.
The 1-year LPR serves as the benchmark interest rate for short-term loans, while the 5-year LPR is the reference rate for long-term loans, such as mortgage loans.
High liquidity in the interbank market and signals from PBOC’s quarterly monetary policy statement suggest policymakers are not in a hurry to cut rates, despite ongoing sluggishness in domestic economic activity and lending.
In its first-quarter policy report, the central bank stated it intends to pursue a moderately accommodative monetary policy, focusing on targeted and effective measures, and emphasized the need to boost domestic economic momentum. This is seen as a sign that the chances of broad-based monetary easing are decreasing.
Nevertheless, the PBOC continues to hold the LPR unchanged, even as April’s economic data underperformed expectations, pressured by rising energy costs stemming from the Iran conflict, which has weakened domestic demand.
Earlier, the National Bureau of Statistics of China (NBS) reported on May 18 that retail sales in April—a key indicator of domestic consumption—rose only 0.2% year-on-year, the slowest pace since December 2022. Meanwhile, industrial output in April increased by 4.1% year-on-year, slower than the 5.7% rise in March and below analysts’ expectations of 5.9%.
