BEIJING, CHINA – JANUARY 6: People’s Bank of China (PBOC) building (January 6, 2025, Beijing, China).
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The People’s Bank of China on Tuesday kept its lending prime rate unchanged as authorities focus on targeted support to specific sectors to support the slowing economy rather than broad policy easing.
The People’s Bank of China kept its one-year and five-year loan prime rates unchanged at 3% and 3.5%, respectively, for the eighth consecutive month.
The one-year rate affects most new and outstanding loans, while the five-year benchmark affects mortgages.
The decision comes as the world’s second-largest economy lost momentum in the final quarter of 2025, growing 4.5% year-on-year, the slowest pace since resuming from strict coronavirus measures in late 2022.
Erika Tay, director of macro research at Maybank, said China’s nominal GDP growth rate rose modestly to 3.8% year-on-year in the fourth quarter, amid signs of easing deflation.
While the GDP deflator shrank to -0.9% in the fourth quarter as industrial profits and tax revenues showed some signs of recovery, Mr Tay estimated that this was the 11th quarter of deflation in the economy.
Retail sales growth in December was a three-year low of 0.9%, as household confidence continued to be hit by a years-long housing recession, a tough job market and persistent deflation.
“Beijing is growing concerned about one of the worst domestic demand slowdowns in a century,” Nomura’s economist team said in a note on Monday.
The central bank last week cut interest rates on structural monetary policy tools by 0.25 percentage points, and from Monday it will cut the one-year interest rate on various refinancing facilities from 1.5% to 1.25%.
The People’s Bank of China will also establish a dedicated refinancing program for private enterprises, increase the number of innovation loans, and support small and medium-sized private enterprises.
Deputy Governor Zou Lan told reporters last week that there was “still room” to lower both the reserve requirement ratio and the policy rate this year. Economists at Goldman Sachs had expected the central bank to cut reserve requirements by 50 basis points and policy interest rates by 10 basis points in the first quarter.
Official data last week showed new bank lending shrank to 16.27 trillion yuan ($2.33 trillion) in 2025, underscoring weak borrowing demand and growing pressure on the government for more stimulus.
Fixed asset investment in urban areas fell by 3.8% in 2020, the first annual decline in decades, dragged down by a deepening slump in real estate investment and Chinese government policies aimed at curbing local debt risks and curbing overcapacity in some industries.
As companies overcome growing trade barriers around the world, China’s manufacturing and exports are holding up well, with industrial production up 5.9% and exports up 5.5% for the full year of 2025, with a trade surplus of $1.2 trillion at the beginning.
