China’s central bank opted to keep its key loan prime rates unchanged on Tuesday, favouring targeted aid for vital sectors over broad monetary easing to counter a faltering economy.
The People’s Bank of China left the one-year loan prime rate at 3 per cent and the five-year rate at 3.5 per cent, fixed for eight months running; the one-year figure sets terms for most loans, while the five-year influences mortgages.
This stance follows a slowdown in the world’s second-largest economy, with growth dipping to 4.5 per cent year-on-year in late 2025—the weakest since Covid curbs eased in 2022. Nominal GDP expansion held below 4 per cent for a third year, reaching 3.8 per cent in the final quarter per Barclays economists, the lowest in 50 years outside the 2020 pandemic; the GDP deflator showed negative readings for an 11th quarter, with deflation set to persist into 2026.
Retail sales grew just 0.9 per cent in December—a three-year low—as a housing slump, weak jobs market and price falls battered consumer confidence. China’s state planner vowed “more proactive fiscal policies” and “moderately loose monetary policy” at Tuesday’s briefing to lift prices, while “Beijing has become increasingly concerned about one of the worst domestic demand slowdowns in this century,” Nomura economists noted on Monday.
Last week, the central bank cut rates on structural monetary policy tools by 0.25 points, dropping the one-year relending rate for agriculture and small firms to 1.25 per cent from Monday; instead of headline cuts, it lowered interest on central bank funding to banks, easing lender costs and spurring cheap credit for key areas.
Plans include a relending scheme for private firms, bigger tech loan quotas, small business aid and commercial mortgage down payments at 30 per cent to clear property stock; new bank loans hit a seven-year low of 16.27 trillion yuan in 2025 per Wind data, fuelling stimulus calls.
PBOC Deputy Governor Zou Lan said last week there was “still room” to cut reserve requirements and policy rates this year, with easing conditions supportive; bank net interest margins held at 1.42 per cent through September for two quarters, trailing last year by 11 basis points but stabilised. Yuan gains against the dollar—offshore up over 1 per cent past the 7 level—aid rate cut scope, trading near 6.96 per dollar with 10-year yields at 1.834 per cent; officials cite a softer dollar and U.S.-China thaw, aiming to keep the yuan in a “reasonable and balanced equilibrium.”
Goldman Sachs sees a 50-basis-point reserve cut and 10-basis-point rate trim in early 2026. Industry rose 5.9 per cent and exports 5.5 per cent in 2025, driving a record trade surplus near $1.2 trillion despite hurdles, though urban fixed-asset investment fell 3.8 per cent—the first drop in decades—due to property woes and debt curbs.