By Obinna Uballa
China kept its benchmark lending rates unchanged on Monday, defying last week’s interest rate cut by the United States Federal Reserve, as Beijing opts for caution despite signs of economic weakness.
The People’s Bank of China (PBOC) left the one-year loan prime rate (LPR) at 3.0% and the five-year LPR at 3.5%, both unchanged for a fourth straight month. The one-year rate guides most loans, while the five-year benchmark is closely tied to mortgages.
The decision matched market expectations, coming days after the PBOC also held its seven-day reverse repo rate steady, even as the Fed lowered its benchmark rate by 25 basis points, CNBC reported. Beijing last trimmed the LPR in May by 10 basis points in a bid to support growth.
Analysts said authorities are reluctant to roll out major stimulus now, given a recent rally in Chinese equities. The CSI 300 index opened higher on Monday but slipped 0.24%, while the offshore yuan firmed slightly to 7.1161 per U.S. dollar.
China’s economy, however, continues to show signs of strain. August data revealed slowing consumption and output: retail sales rose just 3.4%, industrial production eased to 5.2%, and consumer prices fell more than expected, reinforcing deflationary concerns. Exports grew 4.4%, the weakest pace since February, amid U.S. trade pressures and fading frontloaded shipments.
Barclays economists said momentum weakened sharply in the third quarter as the property downturn deepened, fiscal support tapered, and curbs on excess industrial capacity weighed on output. “Almost all housing indicators deteriorated further in August,” they noted.
Despite Beijing’s 2025 growth target of around 5%, most forecasters expect additional policy easing later this year. Barclays projects GDP growth at 4.5%, warning of a sharper-than-expected slowdown. The bank, according to CNBC, expects the PBOC to deliver incremental measures in the fourth quarter, including a 10-basis-point cut to the LPR and policy rates, along with a 50-basis-point reduction in banks’ reserve requirement ratio.
“China has reached a point where it must shift from debt-fueled asset accumulation to more productive investments,” said Hong Hao, CIO of Lotus Asset Management. “We should see further stimulus in the coming months as the focus shifts from risk management to reflating the economy.”
