Source Credit : Portfolio Prints
China kept its benchmark lending rates unchanged for an 11th consecutive month, signalling a cautious policy stance as authorities balance the economic risks from escalating tensions in the Middle East with steady domestic growth and easing deflationary pressures.
The People’s Bank of China left the loan prime rate (LPR) unchanged on Monday. The decision comes as rising global oil prices—driven by geopolitical instability—have begun to lift energy costs and complicate the country’s growth outlook.
The one-year LPR, which guides corporate and household loans, was held at 3.0%, while the five-year LPR, a key reference for mortgage rates, remained at 3.5%.
The central bank’s pause follows stronger-than-expected economic momentum. China’s economy expanded 5% in the first quarter, up from 4.5% in the previous quarter, placing it at the upper end of its annual target range. Even so, Beijing has set a more modest growth target of 4.5% to 5% for 2026—its lowest in decades—reflecting a more cautious long-term outlook.
Price indicators also suggest a shift in underlying dynamics. Factory-gate prices rose 0.5% year-on-year in March, marking the first increase in over three years and indicating that higher import costs are filtering through the economy. Consumer inflation, which surged to 1.3% in February, eased slightly to 1% in March but remains at its highest levels in recent years.
With growth holding firm and inflation showing signs of life, the urgency for further monetary easing has diminished. Economists are increasingly pushing back expectations for interest rate cuts, anticipating that policymakers will prioritise stability over aggressive stimulus.
Analysts, including Yu Song, expect authorities to adopt a “wait-and-see” approach. Rising inflation reduces the central bank’s incentive to cut rates, while uncertainty stemming from geopolitical developments warrants a more measured response.
The PBOC has reiterated that it will maintain a “supportive” and “moderately loose” monetary policy stance, aiming to sustain growth while ensuring currency stability.
Speaking at an International Monetary Fund meeting in Washington, D.C. last week, central bank governor Pan Gongsheng warned that rising geopolitical tensions, protectionism and trade barriers are weighing on global growth and increasing financial volatility. He called for stronger international coordination to preserve macroeconomic and financial stability.
Meanwhile, Finance Minister Lan Fo’an reiterated Beijing’s focus on boosting domestic demand and consumption, while also pledging to contribute more “global public goods” to support shared economic development.
