MNI PBOC WATCH: March LPR To Hold Amid Higher Inflation

China’s Loan Prime Rate (LPR) is expected to remain unchanged in March as the central bank holds its key 7-day reverse repo rate steady amid rising inflation from surging oil prices and stronger-than-expected economic performance in the first two months of 2026.

The one-year LPR is likely to stay at 3.0% and the five-year rate at 3.5% on Friday, marking the 10th consecutive month the rates have remained unchanged. Both were last lowered by 10 basis points in May 2025, following a 10bp cut to the 7-day reverse repo rate — the benchmark policy rate — on May 8, and a 50bp reduction in the reserve requirement ratio on May 15, measures largely aimed at countering tariff-related shocks. (See MNI PBOC WATCH: Fiscal Expansion Key For Further Policy Easing)

Yao Jingyuan, a special research fellow at the Counsellors’ Office of the State Council, told MNI that rising global oil prices could push China’s producer price index (PPI) into positive territory as early as April, ending more than 40 months of contraction. He noted that the impact on consumer prices is likely to remain limited, as falling food prices offset some of the effect, with a 10% rise in global oil prices estimated to lift the PPI by 0.5 percentage points. (See MNI INTERVIEW: Iran War To Push China’s PPI Positive - Advisor)

China’s PPI narrowed its prolonged year-on-year decline to -0.9% in February, while CPI rose 1.3% y/y, marking its highest increase in three years, according to the National Bureau of Statistics. Yao forecasted CPI growth would fall to around 1% in March, as prices for meat, vegetables, and fresh fruit have declined after the Spring Festival holiday.

ECONOMIC SIGNALS 

Economic indicators also point to rising demand and an easing of previous oversupply in the first two months, supported by a jump in exports that boosted investment and corporate lending, reducing the urgency for further monetary easing.

Dollar-denominated exports rose by 21.8% y/y in the first two months, well above expectations of 7.2% and up from 6.6% in December, driving an increase in manufacturing investment and helping fixed-asset investment rebound from last year’s negative territory.

Xu Hongcai, deputy director of the China Association of Policy Science’s Economic Policy Commission, said GDP growth close to 5% remains achievable despite Beijing’s target range of 4.5-5% — the lowest in three decades and down from “around 5%” last year. He added that large-scale stimulus is unnecessary given the economy’s underlying resilience.

Credit demand has also recovered, aiding the People’s Bank of China’s efforts to support policy transmission. Both new yuan loans and aggregate financing exceeded expectations in February, with short-term corporate borrowing reaching a six-year high and medium- to long-term corporate loans returning to year-on-year growth, thanks to robust exports. However, household loans remained weak, highlighting ongoing weakness in consumption and property sales.