China decided on Wednesday to keep its benchmark lending rates unchanged, continuing to hold the one-year loan prime rate (LPR) steady at 3.0 percent and the over-five-year LPR, which is used as the benchmark for many mortgage rates, at 3.5 percent. This decision aligns with market expectations and marks the third consecutive month that the People’s Bank of China (PBoC) has maintained these record low rates without adjustment, China’s state agency Xinhua reported.
The LPRs serve as critical market-based benchmark lending rates in China, reflecting the financing costs faced by households and businesses. Maintaining these rates at current levels aims to ease the debt service burden on borrowers, potentially encouraging increased investment and consumer spending, which are vital for sustaining economic momentum.
The decision to hold the rates steady comes amid recent economic data signaling that China’s economy might be experiencing a loss of momentum. Industrial output grew at its slowest pace in eight months in July, and retail sales saw their weakest growth since December 2024. Moreover, the volume of new yuan loans fell for the first time in 20 years, underperforming analysts’ expectations, despite broader credit growth showing some signs of improvement. These mixed signals suggest that while the economy is facing challenges, aggressive monetary policy adjustments such as further cuts to benchmark lending rates are not currently deemed necessary by policymakers.
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Cautious approach to economic recovery
China’s government and central bank have reiterated a commitment to a moderately loose monetary policy in 2025. This approach seeks to balance the need for economic support with risks related to inflation and financial stability. Instead of broad-based rate cuts, the central bank appears to favor targeted and structural measures to support specific sectors and address the economy’s underlying challenges, including reducing industrial overcapacity and dealing with weaker domestic demand amid rising trade frictions, particularly with the U.S.
The one-year LPR influences most corporate and household loans, while the five-year LPR is especially important for mortgage rates. By keeping these rates unchanged, the PBoC signals its cautious stance, aiming to support economic recovery while avoiding overheating or adding financial risks. Analysts suggest that although rate cuts could be employed as a tool for economic stimulus, the current view is that other structural and targeted policy measures may be more appropriate to foster sustainable growth.
Uncertainty surrounding future easing
China’s economic resilience was demonstrated in the slower-than-expected deceleration during the second quarter of 2025, despite external pressures such as tariffs and the global trade environment. Nevertheless, domestic demand remains fragile, and deflationary pressures persist, with producer prices falling deeper into deflation in June 2025. These factors contribute to uncertainty about the timing and magnitude of any future easing by the central bank.
Market watchers anticipate that the PBoC will continue closely monitoring economic conditions and may adjust its policy stance accordingly. However, expectations lean towards selective easing measures and fine-tuning of monetary policy rather than broad, aggressive rate cuts. This measured approach reflects both confidence in the economy’s fundamental strength and caution in the face of external and domestic headwinds.
