China’s central bank kept both benchmark lending rates unchanged on Sunday, marking the 16th consecutive month without a move. The one-year loan prime rate (LPR) was held at 3.00%, while the five-year LPR — the reference rate for most mortgages — stayed at 3.50%. The decision matched market expectations: all 21 participants surveyed by Reuters had forecast no change to either rate.
The steady rates carry particular relevance for Hong Kong and Taiwan investors tracking mainland China’s property and credit conditions. Because the five-year LPR underpins mortgage pricing, its 16th straight month on hold signals that Beijing is not adding fresh stimulus to the property sector for now, even as policymakers weigh how much room remains for further monetary easing.
The hold came as People’s Bank of China (PBOC) Governor Pan Gongsheng said the country’s slower loan growth is becoming “the new normal,” with shrinking property and local government sectors sapping credit demand faster than emerging industries can fill the gap. The decision also followed a more hawkish turn abroad: the U.S. Federal Reserve raised interest rates last week and flagged further hikes ahead, a unanimous move that included new Fed chair Kevin Warsh, and the yield premium on benchmark 10-year U.S. Treasuries over Chinese government bonds hovered near a record high afterward.
Looking ahead, analysts said the diverging U.S. and Chinese rate paths make near-term easing in Beijing less likely. “Unless domestic demand weakens a lot more materially, the likelihood of broad-based monetary easing in Q4 has diminished in our view, particularly against the backdrop of a more hawkish U.S. Federal Reserve,” said Serena Zhou, senior China strategist at Mizuho Securities. Jacqueline Rong, chief China economist at BNP Paribas, said she believes China is in the late stage of its rate-cutting cycle, with a base case of the PBOC staying on hold for the rest of the year — constrained by tight bank interest margins and an economic transition from deflation to mild inflation — though she added the risk to that view “is tilted to a cut if economic growth disappoints.”
References
Reuters – China Keeps Benchmark Lending Rates Unchanged for 16th Month in September
