China's LPR Unchanged for 12th Consecutive Month in May

(CNA, Taipei, May 20) The People's Bank of China (PBOC) announced today that the 1-year Loan Prime Rate (LPR) stands at 3% and the 5-year-plus LPR is 3.5%, keeping the LPR unchanged for 12 consecutive months. Mainland Chinese media quoted experts analyzing that with current liquidity being relatively abundant and commercial banks' net interest margins falling to historic lows, the PBOC lacks the willingness to proactively cut interest rates in the short term. According to Cailian Press, market participants generally considered the unchanged May LPR to be in line with expectations. Dong Ximiao, chief economist at Zhaolian, analyzed that the real GDP grew by 5% year-on-year in the first quarter, accelerating by 0.5 percentage points from the fourth quarter of last year. Industrial value-added for large-scale enterprises and imports/exports performed well, and price data showed marginal improvement. The macroeconomy has shown strong resilience despite geopolitical disturbances, making "further monetary easing not very urgent." He said that maintaining LPR stability helps alleviate operational pressure on banks, reduces 'involutionary' competition, and preserves their capacity for sound development and serving the real economy. Dong Ximiao stated that the "Q1 2026 China Monetary Policy Execution Report" emphasizes the "precise and effective implementation of a moderately accommodative monetary policy." This indicates that while maintaining a moderately accommodative overall direction, the PBOC is placing greater emphasis on the forward-looking, precise, and effective nature of its monetary policy, and will not blindly increase aggregate stimulus. He mentioned that the "Report" no longer directly refers to "RRR cuts and interest rate cuts," but instead proposes the "flexible use of various monetary policy tools." CNR.cn quoted Wang Qing, chief macro analyst at Golden Credit, as saying that driven by looser liquidity, major market rates, including the yield on 1-year AAA-rated commercial bank negotiable certificates of deposit (NCDs), have recently seen a certain degree of decline. The average yield on 1-year AAA commercial bank NCDs in April was 1.47%, down 7 basis points from the previous month and 18 basis points from the end of last year, hitting a record low. He said this means that although commercial banks' wholesale funding costs in the money market have recently decreased to some extent, from the perspective of stabilizing interest margins, quoting banks still lack the motivation to proactively lower their LPR quote spreads. Wang Qing stated that due to factors like imported inflation and anti-involution policies, the price level will see a moderate recovery this year, but the consumer price index (CPI) increase will remain low, leaving ample room for monetary policy in a moderately accommodative direction, including interest rate cuts.