People’s Bank of China announces prime lending rate

China will release its Prime Lending Rate (LPR) today for January. Coping with the economic slowdown due to COVID-19

Photo credit: Carlos Garcia Rawlins / Reuters

China will release its Prime Lending Rate (LPR) today for January.

Faced with economic slowdown due to COVID-19 pandemic, People’s Bank of China (PBOC) slashed LPR in 2020 to stimulate growth. The one-year LPR, affecting new and existing loans, was reduced from 4.05% to 3.85%, while the five-year LPR, affecting mortgages, was reduced from 4.8% to 4.65%.

Despite cuts and an otherwise authoritarian pandemic response, China’s GDP has grown 2.3% in 2020. Although this is a huge improvement over other major economies, it continues the broader trend of declining Chinese GDP growth. Even then, Beijing’s official figures have been met with skepticism, as they rarely fail to meet or approach the goals set by the Chinese Communist Party (CCP) leadership.

The PBOC will maintain the current LPRs in the near term as China moves towards a post-pandemic economic recovery. With a one-year LPR set at 3.85%, Beijing is placing more emphasis on growing small and medium-sized businesses to boost domestic consumption. Yet large companies like online retailer Alibaba face strong criticism nationwide for their abusive working conditions and internationally for controversial CCP practices, including alleged genocide Uyghur Muslims in Xinjiang, the economic recovery may be more complex than Beijing anticipates. Thus, it is likely that the PBOC will also maintain LPRs at current rates over the medium term.

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