PBOC loan prime rate is expected to remain unchanged on July 20, with markets looking for no move in both the one-year and five-year tenors. If that happens, it would mark a fourteenth straight month without a change. Japan is closed for a holiday, while South Korea has reopened after a long weekend.
The one-year rate, which the source said guides most household and corporate lending, has stood at 3.0% since May 2025. Meanwhile, the five-year rate, which underpins mortgage pricing, has held at 3.5% over the same period. The source also said few data releases in Asia are likely to move markets much on the day.
PBOC Loan Prime Rate Outlook
The source said the People’s Bank of China still uses the loan prime rate to set borrowing costs across the real economy. However, it added that the bank now relies more on the seven-day reverse repo rate as its main policy tool. Governor Pan Gongsheng flagged that shift in mid-2024, according to the source.
Because the reverse repo rate can change each day, it gives policymakers faster control over funding conditions, the source said. In contrast, the loan prime rate is fixed once a month from submissions by 18 designated banks. Those submissions are shaped by what the banks pay for PBOC liquidity, the source added.
Reverse Repo Rate Remains in Focus
That reverse repo rate has stayed at 1.4% since a 10 basis point cut on May 9, 2025, the source said. It said that move came during a broader easing round that also reduced the loan prime rates, the reserve requirement ratio, and housing fund loan rates. However, officials appear reluctant to cut again because of concern about bank margins and pressure on the yuan.
The source said China’s economy grew 5% in the first quarter of 2026, which was at the top of its target range. As a result, pressure to loosen policy eased. However, second-quarter GDP growth slowed to 4.3%, which the source described as the weakest pace in three and a half years.
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Source: InvestingLive
