China Keeps Interest Rates Unchanged for 5 Months… Global 'Wait-and-See Mode'

Bank of Japan Holds Rates Amid Inflation Pressure

Bank of Korea "External Uncertainty Persists"

The People's Bank of China kept the loan prime rate (LPR), which serves as the benchmark interest rate, unchanged for the fifth consecutive month on the 20th. The Bank of Japan also held its benchmark interest rate the previous day, indicating that central banks worldwide are maintaining a 'wait-and-see' stance considering uncertainties such as the tariff war initiated by the U.S.

The People's Bank of China decided to maintain the one-year LPR, which serves as the standard for general loans, at 3.1% per annum, and the five-year LPR, which serves as the standard for mortgage loans, at 3.6% per annum. China has maintained this stance since lowering the one-year and five-year LPR last October to stimulate the economy.

The background for holding the rates is the deteriorating profitability of commercial banks. In the fourth quarter of last year, the net interest margin of Chinese commercial banks hit a record low of 1.52%. The fact that recent consumer indicators have been better than expected also supports the decision to hold rates.

However, the possibility remains that the People's Bank of China may lower rates in the future due to the real estate market slump and deflation concerns.

The Bank of Japan, Japan's central bank, also held its benchmark interest rate at 0.5% per annum the previous day. The Bank of Japan plans to raise the benchmark interest rate further due to increasing inflationary pressures, but this time it held the rate considering global economic uncertainties.

The Bank of Korea also expressed concerns about external uncertainties. Following the U.S. Federal Reserve's rate hold, the Bank of Korea stated, "External uncertainties such as the future path of the Fed's monetary policy, U.S. tariff policy, and geopolitical risks in the Middle East and Ukraine will persist."

Reported by Hyein Lee and Jinkyu Kang hey@hankyung.com