MNI PBOC WATCH: LPR, RRR Cuts Seen Later In 2025; Held For Now

China’s Loan Prime Rate is expected to be reduced by 10 basis points later this year, together with a likely reduction in the People’s Bank of China’s benchmark seven-day reverse repo rate in order to counter the downward impact of weak exports and domestic demand, policy advisors told MNI, after key rates were held steady on Monday while previous easing takes effect.

The LPR remained unchanged at 3.0% for the one-year maturity and 3.5% for the five-year-and-over tenor on Monday. Both rates were last reduced in May by 10 basis points after the PBOC lowered the seven-day reverse repo by 10bp to 1.4% on May 8, and followed up with a 50bp reduction to the reserve requirement ratio on May 15. The PBOC is likely to make another 10bp cut to the seven-day reverse repo and a 50bp reduction in banks’ reserve requirements at some point later in 2025, considering economic headwinds, policy advisors said.

Liang Jing, director at the Bank of China Research Institute, saw pressures on the economy intensifying in the second half, with GDP growth projected at 5% in Q3 and 4.6% in Q4, and with exports sliding 2% y/y in Q3 for their first quarterly contraction since December 2023, while property development investment accelerates its decline to 10.8% for all of 2025.

A high comparison base and earlier front-loading of shipments could further disrupt exports, she noted, adding that U.S. tariff policies remain uncertain. (See MNI: China's GDP Faces H2 Growth Challenges)

In addition to ensuring accommodative monetary conditions to support the economy, policymakers are also considering a pilot test of yuan-pegged stablecoins in Hong Kong, as part of wider efforts to promote international use of the Chinese currency and as Beijing keeps a close eye on the quick expansion of dollar-based stablecoins. (See MNI: China To Test Offshore Stablecoin As U.S. Coins Spread)

 The PBOC simplified access for overseas entities to the China’s Cross-Border Interbank Payment System earlier in July in a bid to support cross-border use of the digital yuan. (See MNI INTERVIEW: Swift Adapts To Digital, Currency-Diverse World)