Beijing Keeps Loan Rates on Ice, Even after the Fed Eases

China stuck to its playbook on Monday, leaving benchmark lending rates unchanged for a fourth straight month despite last week’s US rate cut. The People’s Bank of China held the one-year loan prime rate at 3.0% and kept the five-year, the key reference for mortgages, at 3.5%. The decision, widely telegraphed by economists, came days after the central bank also left its seven-day reverse repo—the main policy rate—steady, underscoring a cautious approach to monetary easing.

The loan prime rate is the number that matters for most borrowers: banks quote it to their best clients, and it filters through to the bulk of new and outstanding corporate and household loans. Beijing last trimmed it in May, shaving 10 basis points to support a wobbly recovery. Since then, officials have balanced two competing realities—signs of economic fatigue at home and a desire not to flood the system with cheap money while stocks rally and capital flows remain skittish.

Markets took the hold in stride. The CSI 300 opened with a bounce before slipping modestly, and the offshore yuan firmed slightly around 7.11 per dollar. Under the hood, the macro picture still looks soft. August data missed forecasts across the board: retail sales downshifted to 3.4% year-over-year and industrial output eased to 5.2%, the slowest since last August. Consumer prices fell more than expected while factory-gate deflation dragged into a third year, a combination that speaks to weak domestic demand. Exports cooled to 4.4% growth as one-off front-loading faded and US trade curbs on transshipment bit into sales routed through third countries.

Property remains the biggest drag. Analysts say momentum weakened visibly in the third quarter as the real-estate slump deepened, fiscal support faded, and efforts to cap “excess capacity” weighed on heavy industry. Barclays’ China team argues housing indicators “deteriorated further” in August and expects only “incremental” policy support near term. Even so, many on the Street still see some easing ahead to help Beijing hit its “around 5%” growth target—think a modest rate trim and a lower reserve requirement for banks later this year rather than a big-bang stimulus.

That’s roughly the consensus path. Barclays is penciling in a 10-basis-point cut to policy rates and the LPR in the fourth quarter, plus a 50-basis-point reserve-requirement reduction; it pegs 2025 real GDP growth at 4.5% given the sharper-than-expected slowdown. Others frame the moment as a policy pivot from “managing risks” to “reflating the economy,” but caution that China can’t go back to the old model of debt-fuelled building just to goose headline numbers.

For the PBOC, standing pat today buys time. Leaving the LPR where it is keeps pressure off bank margins, avoids stoking fresh yuan volatility after the Fed’s 25-basis-point cut, and preserves ammunition if growth sags further into year-end. The outcome also fits the mechanics: the LPR is set monthly from quotes by designated lenders, and officials have signaled they prefer targeted tools—credit guidance, structural facilities, and housing tweaks—over sweeping rate moves.

Beijing’s not ignoring the slowdown, but it’s choosing patience over panic. Small, surgical steps later in the year remain on the table; for now, the signal from Zhongnanhai to markets and households is simple—steady hands, steady rates.

CNBC and Reuters contributed to this report.