China Holds Benchmark Rates Steady Amid Fed Rate Hike, Tight Monetary Policy
China's benchmark lending rates remained unchanged for the 16th consecutive month as policymakers face limited room to ease monetary policy following the Federal Reserve's recent rate hike. The one-year loan prime rate held at 3.00% and the five-year LPR stayed at 3.50%, matching expectations from all 21 economists surveyed by Reuters.
The People's Bank of China (PBOC) has linked its benchmark lending rates to the 7-day reverse repo rate, which is now its main policy rate since a framework shift in mid-2024. The unchanged policy rate is attributed to the reason why the LPRs have not moved since May 2025.
China faces constraints of its own, including weak credit demand and pressure on banks' profitability. PBOC Governor Pan Gongsheng has stated that slower loan growth is becoming normal due to the shrinking property and local government sectors reducing credit demand faster than emerging industries can replace it.
The yield premium on 10-year US Treasuries over Chinese government bonds has hovered near a record high following the Fed hike, which typically puts pressure on the yuan. However, reports indicate that the currency has continued to strengthen, making its trend worth monitoring.