The benchmark rate for the Chinese banking sector has held steady for over a year, with domestic analysts pointing to the ongoing recovery of the economy from the impacts of COVID-19 as a key factor for its protracted stability.
The LPR’s issued by China’s National Interbank Funding Center (全国银行间同业拆借中心) on 20 May were 3.85% for the one year LPR and 4.65% for the five year LPR – the same as the readings for the preceding month.
China’s LPR’s have remained at the same level since April 2020, when the one year LPR fell by 20 basis points compared to the March reading of 4.05%, and the five year LPR fell by 10 basis points from 4.75%.
The LPR in China is the lending rate provided by commercial banks to their highest quality customers, and serves as the benchmark for rates provided for other loans.
The National Interbank Funding Center serves as the designated publisher of the LPR, and releases the figures at 9:30 am on the 20th of each month, after first collecting quotes from the group of reporting banks and calculating the average of these quotes following exclusion of the lowest and highest quotes.
Zhou Maohua (周茂华), financial markets analyst with China Everbright Bank, said to the Chinese central bank’s news outlet that the chief reason for the unchanged LPR in May is that “economic recovery has fundamentally satisfied expectations, and demand for loans in the real economy continues to flourish.”
“Interest rates for loans are rational, and continue to provide vigorous support for economic recovery,” said Zhou. “Additionally, because some banks still face pressure to supplement their capital…this significantly reduces their motivation to make downwards adjustments in rates for loans.”
Wang Qing (王青), chief macro-analyst with Golden Credit Rating, said that the average marginal cost of funds of banks had remained steady of late, and that there was still no impetus for quoting banks to make adjustments.
Since March the DR007 rate – considered representative of short-term market rates in China, has seen only a slight decline, while interbank certificate of deposit rates have also fallen just slightly, and the yields for structured deposits have held steady. Rates for fixed-term deposits of banks have posted a rise.
“While under China’s current interest rate regime the LPR is considered a market rate, it still undoubtedly has strong significance in terms of policy signals,” said Wang.
According to Wang the stability of the LPR is significant of China’s current monetary policy stance that “stability is the watchword” during the recovery of the economy from the COVID-19 pandemic.