Benchmark lending rates unchanged again
China’s central bank left its key lending benchmarks untouched on Tuesday, underscoring policymakers’ cautious approach as they attempt to revive momentum without unsettling the currency.
The People’s Bank of China maintained the 1-year loan prime rate at 3% and the 5-year rate at 3.5%. It marks the tenth consecutive month without a change, despite signs that the recovery in the world’s second-largest economy is losing steam.
The one-year rate guides most corporate and household borrowing, while the five-year benchmark serves as a reference for mortgage pricing.
Economic headwinds intensify
China’s economy expanded 4.5% year on year in the final quarter of last year, the slowest pace since pandemic restrictions were lifted in late 2022. Persistent deflationary pressures and subdued domestic demand have complicated efforts to reignite stronger growth.
Retail sales growth eased to 0.9% in December, marking a three-year low. Meanwhile, the GDP deflator has remained in negative territory for eleven consecutive quarters, highlighting ongoing price weakness across the economy.
Authorities have sought to stimulate spending by promoting service-sector consumption, encouraging growth in elderly care, leisure and tourism as traditional goods demand remains muted amid a prolonged property slump and fragile labor market conditions.
Currency stability in focus
The policy pause also reflects sensitivity around the yuan. The offshore currency has appreciated from roughly 6.974 per dollar at the start of the year to about 6.889, supported in part by recent dollar softness.
The PBOC manages the yuan within a 2% trading band on either side of a daily midpoint fixing. In late January, the central bank set the midpoint below the 7-per-dollar threshold for the first time in nearly three years, signaling tolerance for modest appreciation.
A firmer yuan, however, could place additional strain on exporters already contending with U.S. tariffs and intensifying global competition.
Outlook for 2026
Economists at ING anticipate the yuan will trade within a range of 6.85 to 7.25 per dollar this year as Beijing balances currency internationalization ambitions with growth objectives. According to the bank, a key uncertainty for 2026 will be whether policymakers ease their emphasis on currency stability in favor of more aggressive economic support.
