China keeps benchmark lending rates unchanged despite slowing economic growth

China’s central bank kept its loan prime rates unchanged on Tuesday as the authorities focus on targeted support for specific sectors to bolster a slowing economy instead of broad policy easing.

The People’s Bank of China held its 1-year and 5-year loan prime rates at 3% and 3.5%, respectively, keeping them unchanged for an eighth straight month.

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

The decision came as the world’s second largest economy lost its momentum in the final quarter of 2025, growing 4.5% year on year, the slowest pace since the reopening from stringent Covid curbs in late 2022.

In nominal terms, China’s GDP growth edged up to 3.8% year on year in the fourth quarter as deflation showed signs of easing, said Erica Tay, director of macro research at Maybank.

The GDP deflator narrowed to minus 0.9% in the fourth amid tentative signs of recovery in industrial profits and tax revenues, Tay estimated, although that 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 continued to be battered by a years-long housing slump, a bleak job market and entrenched deflation.

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

Last week, the central bank lowered the interest rates on its structural monetary policy tools by 0.25 percentage point, reducing the 1-year rate for various relending facilities to 1.25% from 1.5%, effective Monday.

The PBOC also plans to set up a dedicated relending program for private firms and increase quotas for tech innovation loans, support for small and medium-sized private companies.

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

New bank loans shrank to 16.27 trillion yuan ($2.33 trillion) in 2025, official data showed last week, underscoring sluggish borrowing demand and piling pressure on the government to provide more stimulus.

Fixed-asset investment in urban areas declined 3.8% in the year, the first annual decline in decades, dragged by the deepening slump in property investment and Beijing’s campaign to curb local debt risks and rein in excess capacity in some industries.

China’s manufacturing and exports have held up well as businesses navigated growing trade barriers around the world, with industrial production rising 5.9% for the entire year of 2025 and exports climbing 5.5%, taking its trade surplus to record of early $1.2 trillion.