China’s central bank is expected to keep its one-year loan prime rate (LPR) unchanged at 3.00%, as authorities balance a firmer growth outlook with lingering domestic fragilities and receding deflation risks.
According to projections from DBS Group Research and a survey of 20 market participants, both the one-year and five-year LPRs are forecast to remain at 3.00% and 3.50% respectively. The consensus view points to continued reliance on targeted credit support rather than broad-based rate cuts.
Growth improves but remains uneven
China’s economy has gained traction, with year-on-year GDP growth accelerating from 4.5% in the fourth quarter of 2025 to 5.0% in the first quarter of 2026. The pickup has been driven largely by the industrial sector, where output rose 6.1%, and by resilient export demand that continues to underpin manufacturing.
Beneath the headline figures, however, domestic conditions remain soft. Retail sales grew just 2.4% in the first quarter, underscoring cautious household spending. The property sector is still a significant drag: new home prices in 70 cities fell 3.4% year-on-year in March, marking the 33rd straight month of declines.
This contrast between strong external demand and weak internal momentum is shaping the central bank’s preference for selective easing over sweeping rate cuts.
Inflation backdrop reduces urgency for cuts
Price trends have eased pressure for immediate monetary action. Headline inflation has stabilized, and factory-gate prices in March turned positive for the first time in more than three years, easing deflation concerns that might have otherwise triggered more aggressive stimulus.
With no clear signs of a sharp slowdown, the People’s Bank of China is expected to stick with a “moderately loose” stance, in line with earlier signals from Governor Pan Gongsheng, while favoring channelled liquidity support rather than across-the-board reductions in borrowing costs.
Targeted policy signals focus on stability
Instead of lowering rates for all borrowers, authorities are directing credit toward priority sectors, a strategy aimed at supporting growth without fueling excessive leverage or asset bubbles. Liquidity injections are being used selectively to shore up areas seen as critical to economic rebalancing and long-term stability.
For traders, this disciplined and predictable approach reduces the likelihood of abrupt policy shifts that could unsettle asset prices. It also provides a clearer backdrop for strategies that depend on steady global growth and contained volatility, as China’s stance helps dampen one potential source of market swings.
External sector offsets domestic softness
External orders continue to support China’s manufacturing base and export performance, partially offsetting weak domestic demand. Rising energy costs and intermittent supply chain disruptions remain key risks, with the potential to slow production or raise cost pressures if they intensify.
Even so, the combination of stable inflation, solid industrial output, and firm exports has given policymakers room to prioritize gradual, targeted support over headline rate moves.
Regional central banks also stay on hold
China’s cautious stability is being echoed elsewhere in Asia. Policymakers in Indonesia and the Philippines are also expected to hold their benchmark rates steady, at 4.75% and 4.25% respectively.
Bank Indonesia is focused on supporting the rupiah and managing capital flows, while Bangko Sentral ng Pilipinas faces rising inflation forecasts but is wary of undermining a fragile economic recovery. Both are navigating an increasingly complex global backdrop marked by shifting rate expectations in major economies and persistent currency volatility.
Across the region, the shared preference for steady policy settings underscores a broader tilt toward stability, controlled liquidity support, and careful calibration of risks rather than sweeping moves in interest rates.
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