China’s central bank held its loan prime rates steady on Tuesday, signaling a shift towards targeted support for specific sectors amid a slowing economy, rather than broad policy easing. The People’s Bank of China (PBOC) maintained its 1-year and 5-year loan prime rates at 3% and 3.5%, respectively, marking the eighth consecutive month without a rate change.
The 1-year loan prime rate influences the majority of new and outstanding loans, while the 5-year benchmark primarily affects mortgage lending. This decision comes as the world’s second-largest economy lost momentum in the final quarter of 2025, registering a 4.5% year-on-year growth—the slowest pace since China eased its stringent COVID-19 restrictions in late 2022.
In nominal terms, China’s GDP growth nudged up to 3.8% year-on-year in Q4, indicating that deflationary pressures may be easing, according to Erica Tay, director of macro research at Maybank. She noted that the GDP deflator narrowed to minus 0.9% in the fourth quarter, amid tentative signs of recovery in industrial profits and tax revenues. However, this still marked the 11th consecutive quarter of deflation in the Chinese economy.
Retail sales growth fell to a three-year low of just 0.9% in December, reflecting weak household confidence affected by a prolonged housing slump, a challenging job market, and persistent deflation. “Beijing has become increasingly concerned about one of the worst domestic demand slowdowns in this century,” a team of economists at Nomura said in a note on Monday.
Last week, the PBOC took a modest step to ease monetary conditions by lowering the interest rates on its structural policy tools by 0.25 percentage points. This move reduced the 1-year rate for various relending facilities from 1.5% to 1.25%, effective immediately. The central bank also announced plans to introduce a dedicated relending program to support private companies and to increase quotas for loans aimed at tech innovation and small to medium-sized enterprises (SMEs).
Deputy Governor Zou Lan told reporters that “there is still room” for further cuts in both the reserve requirement ratio (RRR) and policy rates this year. Economists at Goldman Sachs echoed this outlook, forecasting a 50 basis point cut in the RRR and a 10 basis point reduction in the policy rate in the first quarter of 2026.
Official data released last week showed that new bank loans shrank to 16.27 trillion yuan ($2.33 trillion) in 2025, highlighting sluggish borrowing demand and mounting pressure on the government to provide additional stimulus measures. Fixed-asset investment in urban areas declined 3.8% over the year—the first annual drop in decades—primarily driven by a deepening slump in property investment and Beijing’s ongoing campaign to curb local debt risks and rein in excess capacity in several industries.
As China navigates its economic challenges, authorities appear committed to more calibrated measures targeting specific sectors, hoping to revive growth without resorting to broad-based monetary easing.
https://www.cnbc.com/2026/01/20/china-lending-rates-lpr-slowing-economic-growth.html
