The People’s Bank of China (PBoC) is expected to keep the 1-year Loan Prime Rate at 3.00% on 24 February, as January economic data are still coming out. Monetary policy remains cautiously supportive, even as geopolitical tensions rise. This view also reflects the lower USD/CNY fixing, which has moved below 7.0. Reports suggest the PBoC is leaning more on targeted structural tools for specific sectors, rather than cutting the Loan Prime Rate or the 7-day reverse repo rate.

Low Volatility Interest Rate Outlook

Broader easing is expected in the second half of 2026. This article was produced using an artificial intelligence tool and reviewed by an editor. If the PBoC keeps the 1-year Loan Prime Rate at 3.00% next week, interest rate markets may stay calm. The central bank recently reinforced this message by holding its medium-term lending facility (MLF) rate at 2.40%. This points to short-term interest rate swaps staying stable for now. The PBoC’s effort to keep USD/CNY below the key 7.0 level shows it prefers exchange-rate stability. With the spot rate trading near 6.98, this managed approach reduces the risk of a sharp yuan drop. In this setting, selling short-dated USD/CNY options may appeal to traders looking to collect option premium. Because policy support is focused on targeted tools rather than broad rate cuts, the impact may differ across asset classes. This approach tends to favor selected sectors, such as green technology, more than the overall market. That fits with the FTSE China A50 index trading in a narrow range around 13,200. Traders may find more opportunity in single-stock derivatives tied to policy-backed industries.

Targeted Tools And Sector Positioning

This cautious approach also matches the mixed January data. Industrial production rose a modest 4.8%, while consumer inflation stayed weak at 0.5%. With inflation still low, there is little urgency for major easing right now. This is similar to 2025, when the PBoC often moved slowly due to uncertain global demand. If broader easing arrives in the second half of 2026, patience will matter. Markets may remain quiet in the near term, but could be set up for bigger moves later. That backdrop may support strategies such as calendar spreads on equity index futures—positioning for lower volatility now and higher volatility in the months ahead. Create your live VT Markets account and start trading now.

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