China held its one-year and five-year loan prime rates unchanged for a 16th straight month, matching forecasts from all 21 economists surveyed by Reuters. The hold follows last week's Fed rate hike, which has pushed the yield premium on US Treasuries over Chinese government bonds near a record high and left Beijing with less room to ease.
China left its benchmark lending rates unchanged for a 16th consecutive month on Sunday. The People's Bank of China held the one-year loan prime rate at 3.00% and the five-year LPR at 3.50%, matching what all 21 participants in a Reuters survey had forecast.
A hawkish Fed narrows the room to ease
The hold comes after the Federal Reserve raised US interest rates last week and signaled further increases could follow. That has widened the gap between US and Chinese monetary policy, and the yield premium on 10-year US Treasuries over comparable Chinese government bonds has hovered near a record high. Reports say the yuan has continued to strengthen despite that gap, though it remains unclear whether the currency can hold that ground.
Why the LPRs barely move anymore
Since a shift in the monetary policy framework announced in mid-2024, the PBOC has treated its 7-day reverse repo rate, now at 1.4%, as its main policy rate, replacing the medium-term lending facility as the central signal. The LPRs, which reflect the rates banks charge their best customers, now take their direction from that short-term rate. That link showed up in July 2024, when the PBOC cut the 7-day rate by 10 basis points from 1.8% to 1.7% and both LPRs fell by the same amount. The benchmarks last changed in May 2025.
Weak credit demand adds to the constraint
Beyond the external pressure from the Fed, China faces limits of its own. PBOC Governor Pan Gongsheng has said slower loan growth is becoming normal, as shrinking property and local government sectors reduce credit demand faster than emerging industries can replace it. With bank margins already thin and the PBOC's main rate tool constrained, traders may instead watch for liquidity measures such as a reserve requirement ratio cut as the more likely form of near-term easing.
Source: Investinglive
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