China is widely expected to keep its benchmark lending rates unchanged for an eighth consecutive month in January, according to a Reuters survey. However, some traders are increasingly positioning for a policy rate cut later in the first half of the year as the country’s economic recovery continues to show uneven momentum.
Last week, China’s central bank announced targeted reductions in sector-specific borrowing costs in an effort to provide early support to growth. Policymakers also indicated there is room in 2026 for further cuts to banks’ reserve requirement ratios, as well as broader interest rate reductions if conditions warrant.
Several market participants said a policy rate cut remains possible in the first quarter, a move that would likely pull the loan prime rate (LPR) lower alongside it.
All 22 respondents in the Reuters poll forecast that both the one-year and five-year LPRs will remain unchanged on Tuesday, holding at 3.0% and 3.5%, respectively.
One East China-based bank trader noted that the likelihood of a January LPR cut appears low, arguing that recent adjustments to targeted policy tools suggest the central bank is not yet prepared to deploy broader monetary measures. Still, the trader added that February could become a key window for potential action.
A Shanghai-based private fund analyst also pointed to the first quarter as a possible period for monetary easing, stating that if policymakers send a stronger pro-growth signal, rate cuts could come first, followed by guidance to push LPRs lower.
China’s economy expanded by 5.0% last year, meeting the official growth target. This performance was largely driven by strong exports and a growing share of global goods demand, which helped offset weak domestic consumption. However, analysts warn this strategy may be difficult to sustain, particularly as U.S. tariffs continue to pressure trade.
The loan prime rate is set monthly after 20 designated commercial banks submit their proposed rates to the central bank. The one-year LPR serves as the benchmark for most new and outstanding loans, while the five-year rate plays a key role in mortgage pricing.
Domestic demand has remained subdued over the past year, weighed down by fragile confidence and an extended downturn in the property sector. Official data released Monday showed that new home prices continued to fall in December, highlighting ongoing stress in the housing market despite repeated government efforts to stabilise it.
