MNI PBOC WATCH: FEB LPR To Hold As Two Sessions Approach

China’s Loan Prime Rate is likely to remain unchanged in February as the central bank keeps its benchmark policy rate steady ahead of the annual “Two Sessions” where top leaders are expected to outline fresh measures to boost domestic demand and stabilise growth.

The one-year LPR is expected to remain at 3.0% and the five-year tenor at 3.5% on Tuesday, marking a ninth consecutive month without change. Both rates were last cut by 10 basis points in May 2025 after the People’s Bank of China lowered its seven-day reverse repo rate – its key policy rate – by 10bp to 1.4% on May 8. That move was followed by a 50bp reduction in the reserve requirement ratio on May 15, aimed largely at cushioning the impact of tariff-related shocks.

The annual gatherings of the National People’s Congress and the Chinese People's Political Consultative Conference will begin on March 4. Premier Li Qiang will deliver the Government Work Report on March 5, setting out major economic targets and policy priorities for the year. The report is closely watched for signals on growth, fiscal stimulus and structural reform.

Advisers expect authorities to tolerate a moderation in headline growth in 2026 as weak domestic demand and export headwinds persist, while policymakers remain wary of deploying large-scale stimulus that could constrain future policy flexibility.

Given ongoing downward pressure, 2026 GDP growth could slow to around 4.8% year-on-year, with the official target potentially adjusted from last year’s “around 5.0%” to a range of between 4.5% and 5.0%, said Wang Qing, chief macro analyst at Orient Golden Credit Rating International.（See MNI: Lower China GDP Growth Eyed Amid Economic Headwinds）

POLICY STANCE

In its Q4 Monetary Policy Report, released early February, the PBOC reiterated its commitment to the “flexible and efficient use” of tools such as RRR cuts and interest rate reductions, without strengthening its easing bias compared with the previous quarter. The language suggested policymakers are prepared to act but are not signalling imminent broad-based rate cuts.

The report stressed calibrating the intensity, pace and timing of policy moves in line with domestic and global economic and financial conditions. It also highlighted the need to “maintain the health of the banking system” and keep overall financing costs low, indicating that any benchmark rate reductions are likely to be cautious as banks’ net interest margins remain low. 

Yuan Haixia, director of the Research Institute at China Chengxin International Credit Rating, expects a 10bp policy rate cut as early as this quarter, along with one to two RRR reductions around mid-year and in the fourth quarter, which would offset liquidity pressures from concentrated government bond issuance between June and August, and large medium-term lending facility maturities in October and November. (See MNI INTERVIEW: Big PBOC Easing Unlikely Despite Price Focus)

Structural monetary tools are likely to remain a priority, with support targeted at consumption, technology, green development and elderly care, in coordination with fiscal interest subsidies, Yuan said.

The PBOC has also pledged to ensure ample liquidity. In February, it conducted a net CNY600 billion injection through outright reverse repos to ease seasonal cash demand ahead of the Lunar New Year. However, the sizeable liquidity injection may reduce the urgency of a near-term RRR cut. Following the rollout of a package of structural measures on Jan 15, monetary policy appears to be in a short-term observation phase as officials assess the impact of earlier easing steps.