The People’s Bank of China (PBOC) has kept the one-year and five-year Loan Prime Rates (LPR) steady. The key policy rate, known as the reverse repo rate, is currently at 1.4%. Most loans in China are based on the one-year LPR, while the five-year LPR affects mortgage rates. Both rates were lowered by 10 basis points in May.

Loan Prime Rate Changes

Recent changes to the LPR were made due to various economic conditions. In May 2025, the one-year LPR was set at 3.00%, and the five-year LPR was at 3.50%, marking a reduction of 10 basis points. Earlier, in February 2024, the five-year LPR was cut by 25 basis points to 3.95% to support the property sector. In August 2023, both the one-year LPR and the five-year LPR were reduced by 10 and 15 basis points, respectively, due to coordinated easing measures. In June 2023, both rates also dropped by 10 basis points. The adjustments in August 2022 included a 5 basis point cut for the one-year LPR and a 15 basis point cut for the five-year rate to help with mortgages. In January 2022, the one-year LPR fell by 10 basis points and the five-year by 5 basis points, as part of early easing efforts. The PBOC’s decision to keep lending rates the same shows they are pausing after the last reduction in May 2025. This suggests that policymakers are watching how this recent cut affects the economy. As a result, we might not see rough changes in yuan-denominated assets in the near term. This choice comes even though we’re seeing mixed economic signals in the third quarter. For instance, industrial production in August 2025 remained strong, but new home prices in large cities continued to drop, falling 0.6% month-over-month. By keeping the five-year mortgage rate steady, authorities are showing caution about adding more broad monetary support for the property sector.

Currency Market Effects

In the currency market, this decision helps stabilize the yuan, particularly since the interest rate difference with the US dollar is still large. The US Federal Reserve has kept its policy rate around 4.75% throughout 2025. The PBOC’s choice not to lower rates further helps prevent additional downward pressure on the USD/CNH exchange rate. We expect the yuan to trade within a narrower range in the upcoming weeks. For those involved in trading equity derivatives, the lack of a new rate cut may disappoint traders looking for a fresh boost for the CSI 300 and Hang Seng indices. Historically, we saw a significant market boost after the targeted 25 basis point mortgage rate cut in February 2024, but the response to the more modest cut in May 2025 was temporary. This pause indicates that traders might want to explore protective put options or prepare for range-bound trading in index futures. While this hold lowers immediate risks, it raises questions about when, or if, the next policy adjustment will occur before the end of the year. This uncertainty could gradually increase implied volatility for options related to Chinese stocks and the yuan. We believe that focusing on longer-dated options could be a smart way to prepare for a potential policy change later in the fourth quarter. Create your live VT Markets account and start trading now.

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