China is expected to leave its benchmark lending rates unchanged for a third consecutive month, even as fresh data points to economic headwinds.
A Reuters survey of 23 market watchers found unanimous agreement that the one-year and five-year loan prime rates (LPRs) will remain steady when announced Wednesday.
The decision reflects a cautious approach by the People’s Bank of China (PBOC), which has avoided sweeping monetary easing.
Instead, it is focusing on targeted measures aimed at specific sectors.
Central Bank Relies on Targeted Support
The one-year LPR serves as the reference for most loans in China, while the five-year rate influences mortgage pricing.
Both were last cut in May by 10 basis points.
Analysts believe the PBOC is reluctant to make another broad move.
“We don’t expect a ‘bazooka-style’ stimulus, while we see targeted demand support in the second half of 2025,” Citi analysts noted.
They added that structural tools may play a bigger role in policy than across-the-board rate or reserve requirement ratio (RRR) cuts.
Balancing Growth and Inflation Risks
China faces the dual challenge of weakening growth momentum and persistent deflationary pressures.
Authorities in Beijing have launched an “anti-involution” campaign to address industrial overcapacity, which is seen as a factor behind falling prices.
The PBOC has also signaled its commitment to moderately loose monetary policy.
In its latest quarterly report, the bank pledged to use structural tools to boost scientific innovation, small and micro enterprises, consumption, and foreign trade.
Weak Loan Data Raises Questions
China’s banking sector showed signs of strain in July.
New yuan loans contracted for the first time in two decades, a development that surprised analysts and raised concerns about credit demand.
However, broader credit growth indicators suggested that overall financing conditions were still improving.
This has eased pressure on the PBOC to deliver immediate rate cuts.
Market Watches for Next Steps
Investors are closely watching how the central bank balances short-term growth support with longer-term reforms.
Targeted lending programs, such as credit support for innovation-driven firms and small businesses, are expected to take precedence over major stimulus efforts.
The PBOC’s cautious approach underscores its priority of ensuring financial stability while managing structural economic challenges.
Outlook for the Rest of 2025
Most economists agree that the PBOC will likely keep policy steady for now.
But if growth slows further in the second half of the year, pressure to act could mount.
For now, the bank is signaling a preference for sector-specific measures that support productivity without fueling debt risks.
The decision to hold rates steady again highlights the balancing act Beijing faces as it seeks to maintain growth, manage deflationary risks, and implement structural reforms.