China Likely to Keep Benchmark Lending Rates Steady in August
China is expected to leave benchmark lending rates unchanged for a third straight month in August, according to a Reuters survey. This comes despite recent data pointing to signs of slowing economic momentum.
PBOC Focuses on Structural Support
Instead of launching broad monetary easing, analysts believe the People’s Bank of China (PBOC) may continue with structural policies targeting specific sectors. These measures are seen as a way to support growth without fueling financial risks.
At the same time, Beijing’s “anti-involution” campaign to reduce industrial overcapacity could help ease persistent deflationary pressures.
Loan Prime Rate Expected to Stay Unchanged
The loan prime rate (LPR) is set each month after 20 commercial banks submit quotes to the PBOC. It serves as the benchmark for most bank loans in China.
- The one-year LPR is used for most new and outstanding loans.
- The five-year LPR guides mortgage pricing.
In May, both were cut by 10 basis points, but no changes are expected this week. All 23 analysts in the Reuters survey predicted the LPR will remain steady on Wednesday.
Analysts See Targeted Measures Ahead
Citi analysts said they do not expect a large-scale stimulus. Instead, they forecast targeted demand support in the second half of 2025.
They noted that structural policies are likely to play a bigger role in the coming months than broad-based rate cuts or RRR reductions.
Credit Data Signals No Urgency for Easing
In July, new yuan loans contracted for the first time in 20 years, missing expectations. However, broader credit growth improved, suggesting the PBOC is in no rush to ease further.
In its latest quarterly policy report, the central bank reiterated its plan to keep monetary policy moderately loose. It pledged stronger support for innovation, consumption, small businesses, and foreign trade.
