China leaves benchmark lending rates unchanged

July 21, 2025 (MLN): China kept its benchmark lending rates unchanged on Monday, as the country navigates through softening economic momentum and subdued consumer confidence.

The People’s Bank of China (PBOC) held the 1-year loan prime rate (LPR) at 3.0% and the 5-year LPR at 3.5%.

These rates, derived from a survey of selected commercial banks, are typically applied to top-tier borrowers and serve as key references for corporate, household, and mortgage loans.

The decision to maintain current rates follows the announcement that China's GDP grew by 5.2% year-on-year in the second quarter, a slowdown from the 5.4% growth recorded in Q1.

Still, the figure surpassed expectations of 5.1% GDP growth, as CNBC reported.

Retail sales growth in June also lost momentum, rising by 4.8% year-on-year, compared to a 6.4% increase in May, and falling short of the 5.4% forecast.

In currency markets, the offshore yuan remained mostly stable following the rate announcement, trading at 7.179 against the U.S. dollar.

Commenting on the decision, Frederic Neumann, Chief Asia Economist at HSBC, told CNBC that the central bank sees little immediate need to cut rates, especially since GDP growth remains above target.

He added that with interest rates already relatively low, further monetary easing may prove less effective in boosting demand compared to fiscal measures.

Neumann also noted that the PBOC may be reserving policy tools for later use, particularly if U.S. tariffs begin to significantly impact Chinese exports.

However, he acknowledged that persistent disinflationary pressures and relatively high real interest rates could still prompt the PBOC to consider further easing.

Meanwhile, analysts from Nomura, in a note dated July 9, cautioned that economic fundamentals may deteriorate in the second half of the year.

They warned of a potential "demand cliff", citing multiple risks including a slowdown in exports due to U.S. tariffs and continued weakness in the property sector.

Nomura also flagged concerns about a worsening fiscal outlook across Chinese cities, anticipating that GDP growth could fall to 4.0% year-on-year in H2, down from 5.1% in H1.

The analysts projected that Beijing would likely roll out another round of supportive measures in the coming months to counteract mounting economic pressures.

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