China Loan Prime Rate

The People’s Bank of China (PBoC) maintained its key lending rates steady for the second straight month at December fixing, aligning with market estimates. The one-year loan prime rate (LPR), the benchmark for most corporate and household loans, was held at 3.1%. Meanwhile, the five-year rate, a reference for property mortgages, was unchanged at 3.6%. Both rates remain at record lows following rate reductions in October and July. The latest decision followed a pledge from Chinese leaders in early December to increase the 2025 budget deficit to 4% of GDP, the highest on record, to spur an economic turnaround and stimulate consumption. They also vowed to shift monetary policy to a "moderately loose" stance next year, moving away from the current "prudent" approach to address the mounting challenges in the economy. A PBoC official recently indicated that the central bank sees more room to further reduce the RRR from the current average level of 6.6%.

China will cut interest rates and reserve requirements next year, the People’s Bank of China research bureau director Wang Xin said at an event on Saturday, as reported by Bloomberg, citing the 21st Century Business Herald. Wang said there is room to further reduce the RRR from the current average level of 6.6%. Friday's data showed that China’s banks extended CNY 580 billion in new yuan loans in November 2024, well below the market expectation of CNY 950 billion, and less than half of the CNY 1.170 trillion from the corresponding period of the previous year, highlighting weak credit demand in the mainland. Last Thursday, China said it would raise the budget deficit, issue more debt, and loosen monetary policy to maintain a stable economic growth rate. As Reuters reported, China's economy is expected to grow by about 5% this year, citing Han Wenxiu, the deputy director of the country's central Financial and Economic Affairs Commission.

The Chinese Politburo, which has a direct influence on the stance of the People’s Bank of China, stated that it will embrace a “moderately loose” strategy for monetary policy in 2025 in a readout preceding the Central Economic Work Conference. The move marked an aggressive shift from the characteristic “prudential” stance since 2011. Along with wording that foreshadows more fiscal stimulus, the government also pledged to support property and equity markets next year, magnifying signals that the government will accelerate its countercyclical support to China’s recent economic struggles, and maintain the ambitious 5% GDP growth target for next year. The move extends the CCP's growing effort to stimulate the Chinese economy following muted reactions to previous policies, but the market also sees the statement as an undercut to potential tariffs of 60% to the US following President-elect Trump's inauguration next month. In its November fixing, the PBoC held both LPRs at record lows.