China leaves benchmark lending rates unchanged as Beijing signals tolerance for stronger yuan - CNBC

China leaves benchmark lending rates unchanged as Beijing signals tolerance for stronger yuan - CNBC

China Maintains Benchmark Lending Rates Amid Currency Stability Focus

The People’s Bank of China (PBOC) has kept its 1-year and 5-year loan prime rates (LPR) unchanged at 3% and 3.5%, respectively, for a tenth consecutive month in February 2026, signaling a cautious approach to monetary policy amid a slowing economy. The decision reflects Beijing’s prioritization of targeted support for key sectors over broad stimulus, as growth in the final quarter of 2025 slowed to 4.5% year-on-year—the weakest pace since late 2022.

China’s economic challenges persist, with deflationary pressures evident in an 11-quarter negative GDP deflator and retail sales growth hitting a three-year low of 0.9% in December 2025. The property sector remains a drag, with fixed-asset investment declining 3.8% annually in 2025, driven by a deepening housing slump and regulatory efforts to curb local debt risks. Meanwhile, industrial production and exports have held up relatively well, with exports rising 5.5% in 2025 and contributing to a record $1.2 trillion trade surplus.

Amid these dynamics, the PBOC has signaled greater tolerance for a stronger yuan. The central bank recently adjusted its daily yuan fixing rate below the 7.0 level for the first time in nearly three years, allowing the currency to strengthen against the U.S. dollar. This shift aligns with efforts to manage inflation and stabilize imports, though a stronger yuan risks squeezing exporters already grappling with U.S. tariffs and global trade barriers.

To balance growth and stability, the PBOC has introduced targeted measures, including lowering interest rates on structural monetary tools by 0.25 percentage points in January 2026 and expanding relending programs for private firms and tech innovation loans. Economists anticipate further easing, with Goldman Sachs forecasting a 50-basis-point cut in the reserve requirement ratio and a 10-basis-point reduction in policy rates in early 2026.

The PBOC’s strategy underscores a delicate balancing act: supporting a weakening domestic economy while managing currency pressures and external trade tensions. With deflationary risks and weak private-sector demand persisting, the focus remains on calibrated interventions rather than broad monetary stimulus.