China Holds Lending Rates Steady Amid Slowing Growth and Weak Consumer Demand

China’s central bank, the People’s Bank of China (PBOC), maintained its key lending rates on Monday, keeping the 1-year loan prime rate (LPR) at 3.0% and the 5-year LPR at 3.5%. This decision comes as the country experiences a dip in consumer confidence and slower economic activity. The 1-year rate affects most corporate and household loans, while the 5-year rate is closely tied to mortgage lending.

The move follows the release of second-quarter economic data showing GDP growth of 5.2% year-on-year, a slight slowdown from 5.4% in the first quarter, but still outperforming expectations from Reuters economists. Despite this, retail sales disappointed, rising only 4.8% in June compared to 6.4% in May, and falling short of projections. These figures underscore underlying economic fragility as China navigates a post-pandemic recovery.

Experts, including HSBC’s Chief Asia Economist Frederic Neumann, suggest the central bank sees no urgent need to cut rates further, given the current growth figures. Neumann added that with interest rates already low, monetary easing may have limited impact, and fiscal interventions might be more effective in stimulating demand. The PBOC may also be holding off on cuts to reserve policy options if U.S. tariffs begin to severely impact exports.

However, economists at Nomura have raised concerns about China’s economic outlook for the second half of 2025, warning of a potential “demand cliff.” They noted that asset prices and market confidence could face pressure due to weaker domestic demand, falling property sales, and reduced exports caused by U.S. trade restrictions. Nomura forecasts that GDP growth could drop to 4.0% in the second half of the year.

As challenges mount, analysts believe that Beijing is likely to implement additional stimulus measures later in the year to shore up the economy. Fiscal strains at the local government level and subdued market interest rates may necessitate urgent support to prevent further decline. The government’s next steps will be critical in determining whether China can maintain momentum or face deeper economic turbulence.

Source: cnbc