PBOC holds one-year and five-year LPR at 3.10% and 3.60% for 13th month. Economy beats target; property weakens. Yuan at 7.28. US rate gap near 240bp. Next meeting July 20.
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The People's Bank of China kept its one-year and five-year loan prime rates at record lows for a 13th straight month in June. The one-year LPR stayed at 3.10%. The five-year rate, a benchmark for mortgages, held at 3.60%.
The pause is the longest in the LPR's history. The PBOC last cut the one-year rate in May 2025, by 10 basis points. The five-year rate has not moved since February 2025.
The economy sent mixed signals. Gross domestic product grew 5.2% in the first quarter, above the official target. New home prices fell 0.3% month-on-month in May, the National Bureau of Statistics reported last week. Industrial output rose 6.7% year-on-year in May, beating the 6.0% forecast. Retail sales grew 4.5%, missing the 5.2% estimate.
The interest-rate gap with the United States added pressure. The Federal Reserve held its policy rate at 5.25%-5.50% in June. The spread between US and Chinese benchmark rates sits near 240 basis points. That gap has driven capital outflows from China. The yuan weakened 0.4% against the dollar in June, reaching 7.28 per dollar, its softest since November 2023.
"The PBOC is boxed in," said Zhang Ming, an economist at the Chinese Academy of Social Sciences in Beijing. "Cutting rates would add pressure on the yuan and risk more capital flight. Holding steady is the path of least resistance."
Market rates tell a different story. The seven-day repo rate, a gauge of interbank funding costs, averaged 1.85% in June, well below the 3.10% one-year LPR. That gap suggests banks are awash in liquidity and the LPR is no longer the marginal cost of funding for most borrowers. The PBOC injected 200 billion yuan through seven-day reverse repos on Monday, keeping the banking system flush.
Property developers are under strain. Country Garden Holdings, China's largest private developer, missed a $15 million coupon payment on a dollar bond due June 15, according to a filing. The company is now in a 30-day grace period. Sunac China Holdings reported a 12% drop in contracted sales for May versus a year earlier.
The conflict in the Middle East added to the PBOC's caution, traders said. The war risk has pushed up oil prices and clouded the global outlook, giving the central bank another reason to hold.
The PBOC's next policy meeting is scheduled for July 20. A change in the seven-day reverse repo rate would come before any LPR move.
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