China Keeps Interest Rates Unchanged for 14th Straight Month, Adopts a Wait-and-See Stance Despite Economic Slowdown

[Financial News] China kept its benchmark Loan Prime Rate (LPR) unchanged for the 14th consecutive month. The move appears to reflect a decision to maintain its current monetary policy stance for now, despite the economic slowdown, amid concerns over possible U.S. rate hikes and weakening bank profitability.
On the 20th, the People's Bank of China (PBOC) announced that it would keep the 1-year LPR at 3.0% and the 5-year LPR, which serves as the benchmark for mortgage loans, at 3.5%.
The LPR is a rate announced monthly by the PBOC based on quotes from 20 major commercial banks in China. Since China has not adjusted its benchmark rate for an extended period, the LPR has effectively served as the reference rate for market lending.
China's economy is slowing. GDP growth in the second quarter of this year came in at 4.3% year on year, missing market expectations. It was the weakest reading since the fourth quarter of 2022, when the impact of COVID-19 was severe.
Exports and advanced manufacturing have remained solid, but weak consumption, real estate, and private investment continue to weigh on the recovery, leaving the economic rebound uneven.
Still, market watchers do not expect Chinese authorities to launch a large-scale stimulus package anytime soon. In a recent report, the Bank of Korea's Beijing office said, "Since exports and advanced manufacturing are supporting the economy, there is not yet a strong need for additional stimulus through monetary policy." In addition, the possibility of further rate hikes by the Federal Reserve System and low net interest margins at Chinese banks are also seen as factors limiting rate cuts.
Markets are watching the Communist Party of China Politburo meeting, set for later this month, as a key turning point for future policy direction. If the meeting outlines monetary and fiscal policy measures to boost domestic demand and support the economy, expectations for a rate cut in the second half of the year could rise again.
[email protected] Kim Kyung-min Reporter