China pauses lending rate cuts after recent easing measures

China expectedly maintained its benchmark lending rates, after Beijing rolled out sweeping monetary easing measures a month earlier to aid the economy. However, slower-than-expected credit growth and deepening deflationary pressure have emphasized the need for more economic easing.

The People’s Bank of China (PBOC) authorized the National Interbank Funding Center (NIFC) to announce that the loan prime rate (LPR) on June 20, 2025, will be 3.0% for 1-year LPR and 3.5% for LPRs over 5 years.

The LPRs will remain valid until the next loan market quotation rate release. The 1-year LPR influences corporate and most household loans in China, while the 5-year LPR is a benchmark for mortgage rates.

Last month, Chinese authorities cut the lending rates for the first time in seven months by 10 basis points as the People’s Bank of China trimmed the 1-year loan prime rate to 3.0% from 3.1%, and the 5-year LPR to 3.5% from 3.6%.

Many state-backed commercial lenders moved to cut their deposit rates by as much as 25 basis points. Zichun Huang, chief economist at Capital Economics, previously said the PBOC would likely continue to ease policy, forecasting the lending rates to be lowered by another 40 basis points by year-end.

Pang says future rate cuts may play a more ‘restrained, supporting role’

📉 China Holds Loan Prime Rates Steady

China’s central bank kept its 1-year LPR at 3.0% and 5-year LPR at 3.5% on Friday, maintaining rates after last month’s surprise cut. The move signals a wait-and-see approach following recent easing steps aimed at supporting growth.

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— Wind Info (@WindInfoUS) June 20, 2025

Bruce Pang, an adjunct associate professor at CUHK Business School, said recent remarks from Chinese policymakers suggested a strong degree of satisfaction with China’s current monetary policy stance and outcomes.

He added that the officials were increasingly inclined to place interest rate cuts and other monetary tools in a more “restrained, supporting role,” while exploring alternative avenues to stimulate economic growth. 

Marco Sun, the Chief Financial Market Analyst at MUFG Bank (China), previously stated that the central bank would likely switch to a “wait-and-see approach” in the coming months unless external geopolitical risks deteriorated enough to extinguish hopes that the economy could stabilize.

A Nomura economist also reportedly said Chinese authorities would likely exercise “limited urgency” in rolling out additional fiscal stimulus in the near term. The economist observed that Beijing might be compelled to ramp up policy support in the second half of this year as the effects of businesses’ front-loading temper. 

“With the renminbi currently experiencing reduced foreign exchange pressure, the PBOC is likely to enjoy greater latitude for future policy maneuvering.”

–Bruce Pang, Adjunct Associate Professor at CUHK Business School

Zhu Hexin, head of the State Administration of Foreign Exchange, said Wednesday that China’s ability to counter forex market volatility had improved. PBOC Governor Pan Gongsheng also stressed Beijing’s ambition to expand the international use of the digital yuan and called for a multi-polar global currency system.

Chinese offshore yuan, which has strengthened over 2% this year, last traded at 7.1805 against the U.S. dollar, regaining ground after weakening to a record low of 7.4287 in early April.

Chen claims that near-term economic stabilization depends on the U.S.-China trade deal

Ho Woei Chen, an Economist at UOB, claimed that near-term economic stabilization depended on reaching a trade deal with the U.S., which would take precedence over more policy stimulus.

She added that the prospect of another 50-basis-point cut to the reserve requirement ratio (RRR) remained in place. Chen also expected the seven-day reverse repo rate to be reduced by 10 basis points in Q4 of this year and guide LPRs to be lower by the same margin. 

A trader at a brokerage reportedly echoed Chen’s sentiment, asserting that any adjustment to the LPR should follow changes to the seven-day reverse repo rate. The trader noted that it would also take some time to gauge the impact of stimulus measures introduced in May.

Market participants also reportedly said key rates moved in tandem with the seven-day reverse repo rate, which served as the main policy rate.

The People’s Bank of China on May 7th cut the rate on seven-day reverse repurchase agreements by 10 basis points to 1.40%, effective May 8th. That was the first cut to the key policy rate since September 2024 and could prompt broader market and liquidity tool rates declines.

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