China keeps benchmark lending rates unchanged despite slowing economic growth

China’s central bank left lending rates unchanged on Tuesday as officials focused on targeted support for specific sectors to shore up the slowing economy rather than broad policy easing.

The People’s Bank of China kept its 1-year and 5-year loan interest rates unchanged for the eighth consecutive month, keeping them at 3% and 3.5%, respectively.

The 1-year rate affects most new and outstanding loans, while the 5-year rate affects most mortgage loans.

The decision comes after the world’s second-largest economy lost momentum in the last quarter of 2025, growing 4.5% year-on-year, the slowest growth rate since the reopening of strict Covid restrictions in late 2022.

Erica Tay, director of macro research at Maybank, said China’s GDP growth in nominal terms rose to 3.8% annually in the fourth quarter, with deflation showing signs of easing.

According to Tay’s estimate, the GDP deflator narrowed to minus 0.9% in the fourth quarter due to temporary signs of recovery in industrial profits and tax revenues; However, this marked the 11th quarter of deflation in the economy.

Retail sales growth fell to a 3-year low of 0.9% in December as household confidence continues to take a hit from a years-long housing slump, a bleak job market and steady deflation.

“Beijing has become increasingly concerned about one of the worst domestic demand slowdowns this century,” a team of economists at Nomura wrote in a note published Monday. he said.

Last week, the central bank reduced interest rates on structural monetary policy instruments by 0.25 percentage points, effective from Monday, and reduced the 1-year interest rate on various lending facilities from 1.5 percent to 1.25 percent.

PBOC also plans to create a special lending program for private firms, increase quotas for technological innovation loans, and provide support to small and medium-sized private companies.

Deputy Governor Zou Lan told reporters last week that “there is still room” to cut both the reserve requirement ratio and policy rates this year. Economists at Goldman Sachs expected the PBOC to reduce the reserve requirement rate by 50 basis points and the policy rate by 10 basis points in the first quarter.

New bank loans decreased to 16.27 trillion yuan ($2.33 trillion) in 2025, official data showed Last week he highlighted that borrowing demand was slowing and increased pressure on the government to provide more stimulus.

Fixed asset investment in urban areas fell 3.8% in the year, the first annual decline in decades, driven by a deepening decline in real estate investment and Beijing’s campaign to curb local debt risks and rein in overcapacity in some industries.

China’s manufacturing and exports performed well; businesses coped with increasing trade barriers around the world; Industrial production increased by 5.9% and exports increased by 5.5% in all of 2025, and the trade surplus reached a record level of $1.2 trillion.