China has maintained its benchmark lending rates for the fourth consecutive month in September, aligning with market expectations. This decision follows the central bank’s recent choice to hold steady on its key policy rate. The stability in the loan prime rate (LPR) reflects a cautious stance by authorities regarding monetary easing, especially amid easing trade tensions with the U.S., robust export performance, and a notable rally in the stock market. However, there are also indications of a slowdown within the domestic economy, coupled with ongoing monetary easing policies by the Federal Reserve.
In numerical terms, the one-year LPR has been fixed at 3.0%, while the five-year rate remains at 3.5%. A survey conducted by Reuters, which included 20 market participants last week, indicated a unanimous expectation of no changes to both rates, despite emerging weak economic data.
Contextually, China’s central bank recently opted not to alter the seven-day reverse repo rate, now serving as the main policy rate. Data from August revealed that factory output and retail sales registered their weakest growth since the previous year, underscoring potential economic headwinds and a slowdown within the domestic landscape.
On the international front, U.S. President Donald Trump indicated progress in discussions with Chinese President Xi Jinping regarding a TikTok agreement and announced plans for a face-to-face meeting in six weeks in South Korea, where topics such as trade, illicit drugs, and Russia’s ongoing war in Ukraine are to be addressed.
Amid these developments, China’s stock market has observed significant gains, with the benchmark Shanghai Composite Index nearing 10-year highs.
Analysts have shared varying perspectives on future monetary policy. Barclays remarked that anticipated stimulus might fall short if tariff agreements remain in place, suggesting expectations of a 10-basis-point cut in both policy rates and the LPR, along with a 50-basis-point reduction in the reserve requirement ratio (RRR) later this year. Meanwhile, Societe Generale flagged the upcoming fourth plenum in October—where policymakers will assess proposals from the 15th Five-Year Plan (FYP)—as the next critical domestic policy event, reiterating the necessity for interest rate and RRR cuts in the fourth quarter.
The ongoing situation reflects a delicate balance for Chinese policymakers striving to stimulate growth while navigating external pressures and internal economic challenges.
