China holds lending rates steady for record 16th month

China kept its benchmark lending rates steady on Sunday, extending a record streak of unchanged rates to 16 consecutive months as policymakers balance domestic economic weakness against a widening interest rate gap with the United States.

The one-year loan prime rate remained at 3.00% and the over-five-year LPR, a key reference for mortgage rates, held at 3.50%, according to the National Interbank Funding Centre, as authorized by the People's Bank of China. Both rates have been unchanged since their last reduction in May 2025. The decision was widely expected, with all 21 market participants in a Reuters survey forecasting no change to either rate.businesstoday+2

Fed Divergence Narrows China's Room to Maneuver

The hold came days after the U.S. Federal Reserve raised its benchmark interest rate by 25 basis points on September 16, bringing the federal funds rate target range to 3.75%–4.0%. The Fed cited resilient domestic spending and elevated price pressures in justifying the increase, with new Fed Chair Kevin Warsh joining a unanimous decision. The yield premium on benchmark 10-year U.S. Treasuries over Chinese government bonds hovered near record highs following the hike.business-standard+1

The contrasting policy paths underscore the divergent economic conditions facing the world's two largest economies. While the U.S. is tightening to contain inflation, China continues to grapple with subdued borrowing demand and persistent property-sector weakness.businesstoday

Economists See Limited Scope for Easing

PBOC Governor Pan Gongsheng has acknowledged that China's slower loan growth is becoming the "new normal," as shrinking property and local government sectors sap credit demand faster than emerging industries can replace it.business-standard

Analysts see little prospect of near-term rate cuts. "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 US Federal Reserve," said Serena Zhou, senior China strategist at Mizuho Securities. Jacqueline Rong, chief China economist at BNP Paribas, said her base case is for the PBOC to stay on hold for the rest of the year, "constrained by tight net interest margins of banks and a transition from deflation to mild inflation".business-standard