MNI PBOC WATCH: LPR Steady As PBOC Cautious Despite Headwinds

The People’s Bank of China’s benchmark loan rate held steady for a seventh consecutive month on Monday, but economists and traders expect further easing in the first quarter as economic headwinds hit.

The Loan Prime Rate remained at 3.0% for the one-year maturity and 3.5% for the five-year tenor and over. Both rates last altered in May, when they fell by 10 basis points in the wake of both a 10bp cut to the PBOC’s benchmark seven-day reverse repo rate to 1.4% on May 8 and a 50bp reduction to banks’ reserve requirement ratios on May 15.

The latest LPR announcement was within expectations after the central bank had kept the seven-day reverse repo operation unchanged at 1.40%. Banks also lack incentives to reduce LPR quotations due to pressure from narrowing interest margins. (See MNI PBOC WATCH: Dec LPR To Hold, OMO Readied For Rising Demand)

Dong Ximiao, chief researcher at Merchants Union Consumer Finance, said a lower LPR is not an urgent priority, since both weighted average interest rates for newly-issued corporate loans and for individual housing mortgages are at historically low levels. What is more, as market interest rates continue to decline, the marginal effect of additional rate cuts is diminishing, while rate cuts are not a key factor for stabilising growth and promoting consumption at present, he said. 

There remains room for reserve requirement ratio and interest rate cuts in 2026, but the probability of the latter is higher, Dong said, adding that market players should temper their expectations.

Still, recent weaker investment, consumption and industrial production data has fuelled expectations of a RRR or policy rate cut in Q1 which would then guide down the LPR. GDP growth is expected to decline from 4.8% in the third quarter to around 4.5% in the fourth quarter, which could prompt the PBOC to be more proactive.

MNI’s latest Money Market Index showed Chinese interbank money market traders expect only limited further cuts to the policy rate and reserve requirements in 2026 as policy focus moves to addressing economic structural issues. MNI’s special question about the possibility of rate and RRR cuts next year showed only 22% of traders thought the pace of rate cuts would be “bigger than in 2025,” and 34% thought the pace would be “smaller”. (See MNI CHINA MONEY MARKET INDEX: Modest Rate Cuts Seen In 2026)