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China’s central bank has maintained both the one-year and over-five-year loan prime rates for the seventh straight month. The benchmark lending rates, which are already at historic lows, may decrease further next year, according to a researcher.
The one-year LPR, a primary benchmark for consumer and business loans, stayed at 3 percent, while the over-five-year LPR, which influences mortgage rates, remained at 3.5 percent, the People’s Bank of China announced today.
Two main factors contributed to the unchanged rates this month: steady policy interest rates and the continued compression of banks’ net interest margins, which is the difference between interest earned on loans and investments, and the interest paid on deposits and other funding sources.
If deposit rates and policy rates continue to decline in 2026, the LPR is likely to stay relatively steady next year with slight decreases. Greater reliance may be placed on targeted monetary policy tools, said Dong Ximiao, Chief Researcher at CMB-China Unicom Consumption Finance. There is still potential for reductions in banks’ reserve requirement ratios and interest rates, with a reserve ratio cut more probable than a rate cut.
The decision to keep the seven-day reverse repo rate unchanged suggests that the foundation for December’s LPR remained the same, indicating in advance that the rate would stay steady for the month, explained Wang Qing, Chief Macro Analyst at Golden Credit Rating International. Meanwhile, with banks’ net interest margins at record lows, lenders have little incentive to proactively lower the LPR.
The last adjustment to the LPR occurred in May, when rates were cut by 10 basis points in line with a reduction in the reverse repo rate. Since then, monetary policy has remained stable.
Despite weaker economic momentum in the second half, there is confidence that China will meet its full-year growth target of around 5 percent, Wang noted. There is currently no urgent need for further counter-cyclical policy adjustments before the year ends, and monetary policy continues to maintain a steady stance.
Both financial and economic data remain weak, said Ming Ming, Chief Economist at CITIC Securities. However, while the Chinese yuan remains resilient and foreign interest rate cuts are ongoing, banks’ net interest margins face significant pressure. As a result, interest rate tools may be used more flexibly in the future, depending on lending recovery in the first quarter of next year. Overall, the accommodative monetary policy environment is expected to stay unchanged.
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