China cautious on rate cuts…Loan Prime Rate frozen for 6 months

China has effectively left the Loan Prime Rate (LPR), which serves as a benchmark lending rate, unchanged for six consecutive months.

The People’s Bank of China on the 20th kept the 1-year LPR, which serves as the benchmark for general loans, at an annual 3% and the 5-year LPR, which serves as the benchmark for mortgage loans, at an annual 3.5%.

Chinese authorities cut the LPR by 0.25% points in October last year amid domestic demand and property sector weakness. Facing growing pressure to stimulate the economy alongside a trade war with a potential second Donald Trump US administration, they made an additional 0.1% point cut in May. Since then, they have maintained a 'freeze' through this month. All 23 experts responding to a Reuters survey predicted a rate hold this month.

Reuters judged that China has moved toward a 'less accommodative monetary policy' stance rather than a full-scale rate cut. In its third-quarter monetary policy implementation report released this month, the People’s Bank of China said, in addition to the previous 'strengthening of counter-cyclical adjustments,' that "counter-cyclical adjustments and pro-cyclical adjustments must both be well managed." This is interpreted as a measure to support against downside economic pressure and as an intention to prioritize medium- to long-term economic stability over short-term, actively responsive counter-cyclical measures.

Experts say this reinforces the 'cautious' view that China will not immediately pursue easing measures such as rate cuts. They analyze that the focus of rate policy will shift toward targeted credit support rather than across-the-board rate cuts. New lending by Chinese banks has plunged month-on-month since last month, indicating weakening demand.

Beijing=Correspondent Eun-jung Kim kej@hankyung.com