China left its benchmark lending rates unchanged for a seventh straight month in December, underscoring the central bank’s cautious approach as the economy continues to grapple with soft domestic demand and a protracted property slowdown.
The one-year Loan Prime Rate remained at 3.00 per cent, while the five-year rate — a key reference for mortgage pricing — stayed at 3.50 per cent. The outcome matched market expectations and marks the longest stretch of unchanged policy since mid-2023.
The People’s Bank of China (PBoC) has maintained a preference for policy stability in recent months, signalling confidence that growth can stay near official targets without fresh monetary easing. Economic data, however, show an uneven recovery. Factory output and retail sales softened in November, and new bank lending came in below forecast amid weak private-sector borrowing.
Economists suggest the central bank is balancing its desire to support the economy with the need to protect the yuan and preserve bank profitability. Net interest margins at major lenders are near record lows, leaving limited scope for aggressive cuts. The PBoC also kept its seven-day reverse repo rate steady at 1.40 per cent, providing short-term liquidity support through open-market operations.
Analysts at Barclays said China’s cross-cyclical stance “shows policymakers remain focused on sustaining growth while maintaining financial stability,” adding that reserve-requirement ratio adjustments may be preferred to outright rate reductions. Nomura expects any fresh monetary easing to come alongside fiscal support in the second quarter of 2026, should credit demand and investment remain subdued.
China’s steady policy path contrasts with signals from other major central banks. The US Federal Reserve and the European Central Bank have both indicated potential easing cycles next year after extended tightening. Beijing’s restraint highlights its distinct policy challenge: stimulating domestic confidence without fuelling capital outflows or financial risk.
As 2026 approaches, attention will turn to upcoming data on consumer spending and industrial production for signs of stabilisation. Economists expect any future PBoC moves — whether through liquidity injections or selective rate adjustments — to reinforce, rather than reset, the country’s gradual recovery trajectory.
