China likely to keep lending rates steady after May cut, trade truce
Published: 03:06 PM,Jun 19,2025 | EDITED : 07:06 PM,Jun 19,2025
Market participants said key rates now move in tandem with the seven-day reverse repo rate, which serves as the main policy rate— Reuters
SHANGHAI :China is widely expected to keep its benchmark lending rates unchanged at a monthly fixing on Friday, after Beijing rolled out sweeping monetary easing measures last month to aid the economy.
A framework agreement covering tariff rates between Washington and Beijing has raised optimism the world’s two largest economies can get business activity back on track, reducing the urgency for additional easing measures.
The loan prime rate (LPR), normally charged to banks’ best clients, is calculated each month after 20 designated commercial banks submit proposed rates to the People’s Bank of China (PBOC).
In a Reuters survey of 20 market watchers, all respondents expected both the one-year and five-year LPRs to remain steady. Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences mortgage pricing.
Last month, China lowered LPRs for the first time since October, while major state banks also cut deposit rates as authorities worked to reduce borrowing costs.
Market participants said key rates now move in tandem with the seven-day reverse repo rate, which serves as the main policy rate. “That means any adjustment to the LPR should follow changes to the seven-day reverse repo rate,” said a trader at a brokerage, adding that it will take time to assess the impact of May’s stimulus.
However, disappointing economic data — including slower credit growth and deepening deflationary pressure — has underscored the need for more support.
“Near-term economic stabilisation is dependent on reaching a trade deal with the US, which will take precedence over more policy stimulus,” said Ho Woei Chen, economist at UOB.
Chen expects the seven-day reverse repo rate to be reduced by 10 basis points in Q4 2025, with LPRs following suit.
“The prospect of another 50-basis-point cut to the reserve requirement ratio (RRR) remains in place,” she added. — Reuters
A framework agreement covering tariff rates between Washington and Beijing has raised optimism the world’s two largest economies can get business activity back on track, reducing the urgency for additional easing measures.
The loan prime rate (LPR), normally charged to banks’ best clients, is calculated each month after 20 designated commercial banks submit proposed rates to the People’s Bank of China (PBOC).
In a Reuters survey of 20 market watchers, all respondents expected both the one-year and five-year LPRs to remain steady. Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences mortgage pricing.
Last month, China lowered LPRs for the first time since October, while major state banks also cut deposit rates as authorities worked to reduce borrowing costs.
Market participants said key rates now move in tandem with the seven-day reverse repo rate, which serves as the main policy rate. “That means any adjustment to the LPR should follow changes to the seven-day reverse repo rate,” said a trader at a brokerage, adding that it will take time to assess the impact of May’s stimulus.
However, disappointing economic data — including slower credit growth and deepening deflationary pressure — has underscored the need for more support.
“Near-term economic stabilisation is dependent on reaching a trade deal with the US, which will take precedence over more policy stimulus,” said Ho Woei Chen, economist at UOB.
Chen expects the seven-day reverse repo rate to be reduced by 10 basis points in Q4 2025, with LPRs following suit.
“The prospect of another 50-basis-point cut to the reserve requirement ratio (RRR) remains in place,” she added. — Reuters