The central bank of China kept its loan prime rates steady on Tuesday as officials concentrate on targeted assistance for particular sectors to support a weakening economy rather than implementing widespread policy relaxation.
The People’s Bank of China maintained its 1-year and 5-year loan prime rates at 3% and 3.5%, respectively, making it the eighth consecutive month without changes.
The 1-year rate impacts most new and existing loans, while the 5-year benchmark is relevant for mortgages.
This decision comes as the world’s second-largest economy lost its vigor in the last quarter of 2025, growing at 4.5% year-on-year, which is the slowest since reopening from stringent Covid restrictions in late 2022.
The nominal GDP, which serves as a measure for assessing corporate profitability and household incomes, has remained below 4% for three years running, standing at 3.8% in the fourth quarter, according to Barclays economists. This is the lowest rate in half a century, excluding 2020 when the pandemic severely impacted the economy.
The GDP deflator — a gauge that highlights variations in the prices of goods and services — has recorded negative values for the 11th consecutive quarter, with the bank predicting that deflation will continue throughout this year.
Retail sales growth plummeted to a 3-year low of 0.9% in December, as household confidence remained weak due to a prolonged housing downturn, a grim job market, and persistent deflation.
During a press conference on Tuesday, China’s state planner indicated that policymakers would persist with “more proactive fiscal policies” and “moderately loose monetary policy” aimed at aiding a recovery in prices.
“Beijing has grown increasingly worried about what it sees as one of the worst domestic demand slowdowns in this century,” a group of economists from Nomura mentioned in a note on Monday.
Last week, the central bank reduced interest rates on its structural monetary policy tools by 0.25 percentage point, lowering the 1-year rate on relending facilities for agriculture and small enterprises to 1.25%, effective Monday.
Instead of directly cutting policy rates, it lowered the interest applied to central bank funding given to financial institutions, thereby reducing banks’ borrowing costs and incentivizing them to provide credit to targeted sectors at more favorable terms.
The PBOC also intends to establish a dedicated relending initiative for private companies and raise quotas for loans that encourage technological innovation, providing support for small and medium-sized private firms. Additionally, the minimum down-payment ratio for commercial property mortgages will be reduced to 30% to help alleviate excess inventory in the real estate market.
New bank loans decreased to a 7-year low of 16.27 trillion yuan ($2.33 trillion) in 2025, as reported by official data from financial service provider Wind Information, revealing sluggish borrowing appetite and increasing pressure on the government to implement more stimulus measures.
More easing on the horizon?
Deputy Governor Zou Lan informed reporters last week that there remains “room” for reducing both the reserve requirement ratio and policy rates this year, while recognizing that conditions have improved for more monetary easing.
Bank net interest margins, or NIMs, have begun to stabilize, Zou remarked, after years of decline that impacted lenders’ profitability. The NIM has remained at 1.42% for the second consecutive quarter through September, though it was 11 basis points lower than the previous year.
The recent strengthening of the yuan has also contributed to the potential for policy rate cuts, Zou pointed out. The Chinese offshore yuan has appreciated more than 1% against the dollar over the past month, surpassing the crucial threshold of 7 per dollar for the first time since May 2023.
The offshore yuan remained relatively unchanged on Monday, trading at 6.9571 against the dollar, as reported by LSEG, while the onshore yuan was 6.9612 per dollar. The yield on China’s 10-year government bond fell slightly to 1.834%.
Policymakers have attributed the recent rise in the yuan to a weakening dollar and decreasing geopolitical tensions between the U.S. and China, rather than a change in monetary policy. The PBOC is dedicated to avoiding “overshooting” and maintaining the yuan in a “reasonable and balanced equilibrium,” Zou stated.
Economists at Goldman Sachs predict the PBOC will lower the reserve requirement ratio by 50 basis points and the policy rate by 10 basis points in the first quarter.
China’s manufacturing and exports have remained resilient as companies navigated increasing global trade barriers, with industrial production growing 5.9% for the entirety of 2025 and exports rising 5.5%, achieving a trade surplus of nearly $1.2 trillion.
Fixed-asset investment in urban regions decreased by 3.8% last year, marking the first annual decline in decades, primarily due to a deepening downturn in property investment and Beijing’s efforts to manage local debt risks and curb excess capacity in certain industries.
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