In a calculated move to support its slowing economy amid ongoing trade tensions with the United States, China reduced key lending rates on May 20, 2025, for the first time since October last year. The People’s Bank of China (PBOC) also saw state-run banks trim deposit rates in tandem, signaling a coordinated effort by the government to ease monetary conditions while preserving commercial banks’ profit margins.
The People’s Bank of China announced that it had cut the one-year loan prime rate (LPR) by 10 basis points, bringing it down to 3.0 percent. Likewise, the five-year LPR, which serves as the benchmark for mortgage loans, was lowered by the same margin to 3.5 percent. These reductions, though moderate, mark the lowest levels for these key rates since the country revamped its LPR mechanism in 2019.
Most new and outstanding loans in China are tied to the one-year LPR, making it a crucial indicator for business and personal lending costs. The five-year LPR, meanwhile, heavily influences mortgage pricing and thus has direct implications for China’s vast real estate sector. By making lending cheaper, policymakers aim to encourage consumption, boost credit activity, and stimulate economic growth at a time when external shocks, particularly from geopolitical friction with the US, have put increasing pressure on China’s financial system.
The rate cuts were swiftly followed by deposit rate reductions across five of China’s largest state-owned banks: Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, and Bank of China. The deposit rates were reduced by 5 to 25 basis points across various tenures. These changes were visible on the banks’ mobile applications and are expected to influence smaller regional banks to follow suit.
The reaction from financial markets was cautiously optimistic. Shares in Chinese banks experienced modest gains following the announcements, with the CSI Bank Index rising by 0.3 percent. Investors appeared to view the move as a sign of Beijing’s willingness to support credit growth without resorting to aggressive monetary easing.
Marco Sun, chief financial market analyst at MUFG Bank (China), commented on the developments by saying, “The rate cuts are clearly aimed at increasing credit lending and stimulating consumption. However, unless external geopolitical risks escalate dramatically, we can expect the central bank to adopt a wait-and-see approach in the coming months.”
These adjustments come at a sensitive moment for China, just weeks after financial regulators, led by PBOC Governor Pan Gongsheng, introduced a broader package of economic support measures. The initiatives coincided with renewed diplomatic engagement between China and the United States, including high-level trade talks held in Geneva earlier this month. Those discussions contributed to a tentative easing of trade tensions, offering a glimmer of hope for stability in global commerce.
Nevertheless, the Chinese government remains cautious in its approach. The size of the recent rate cuts reflects a deliberate, incremental policy stance—one that aims to preserve financial stability while still delivering stimulus in a complex international environment.
As trade friction continues to cast a long shadow over China’s economic outlook, these latest monetary measures suggest that Beijing is prepared to act, albeit gradually, to shield its economy from further external shocks and encourage domestic recovery.