China left its benchmark lending rates unchanged on Tuesday for a 17th consecutive month, with the one-year loan prime rate (LPR) held at 3.00% and the five-year rate at 3.50%, investingLive reported. The hold came a day after People’s Bank of China (PBOC) Governor Pan Gongsheng outlined plans that could gradually reduce the LPR’s central role in how loans are priced.
The October decision, confirmed by FXStreet and BigGo Finance, leaves both rates where they have stood since May 2025, when each was trimmed by 10 basis points. The LPR is compiled monthly from quotes submitted by a panel of 20 banks. The one-year rate underpins most corporate and household borrowing, while the five-year rate serves as the reference for mortgages.
Pan signals move toward overnight rate
Speaking at the Financial Street Forum in Beijing on Monday, Pan said the central bank would study switching the tenor of its main open-market operations to overnight when the timing is appropriate, according to investingLive and BigGo Finance. The PBOC’s formal policy rate is currently the seven-day reverse repo rate, which investingLive put at 1.40%.
Pan also said loan pricing would be pushed away from reliance on a single LPR reference. Financially stronger companies could choose between the interbank overnight repo rate and the LPR as the benchmark for floating-rate loans, while households and smaller businesses would continue to rely mainly on the LPR. He disclosed that some lenders have already agreed with clients to price floating-rate loans off the overnight repo rate, BigGo Finance reported, and said the PBOC would also work to improve how LPR quotes are formed.
Among other measures, Pan said the central bank would phase out its old benchmark deposit and lending rates, having published average deposit rates as a reference since the first quarter of 2026. He also outlined a liquidity support tool for large redemptions at non-bank institutions, wider eligibility for the standing lending facility, and a plan to let eight offshore yuan clearing banks conduct proprietary trading in the onshore interbank foreign exchange market, according to BigGo Finance and Dow Jones reporting carried by MarketScreener.
China Galaxy Securities said the overnight repo rate could become an anchor for floating-rate loans to high-credit borrowers, as well as for pricing bonds and derivatives, BigGo Finance reported.
Growth backdrop eases pressure to cut
The steady rates follow data showing China’s economy grew 4.5% year on year in the third quarter, slightly ahead of forecasts, with retail sales and industrial output also beating expectations. investingLive described the hold as “widely expected” and said it should have little direct market impact, arguing that Pan’s comments on the overnight rate carry greater weight for the policy outlook. The outlet also pointed to the wide gap between US and Chinese bond yields as part of the backdrop.
Market reaction was muted, with the Australian dollar little changed near US$0.6980 after the announcement, FXStreet said.
What’s next
A Reuters poll conducted before the GDP release, cited by investingLive, found economists expect both the LPR and banks’ reserve requirement ratio to stay unchanged through the first quarter of 2027. Investors will now watch for a timetable on the overnight-rate switch and for how quickly lenders adopt alternative benchmarks for corporate loans.
Leave a Reply
You must be logged in to post a comment.