March LPR Rate Quotation Results Remain Unchanged; Experts: Pace of Policy Easing Depends on Economic Recovery and Other Factors

Everyday Economic Reporter | Zhang Shoulin
Everyday Economic Editor | Huang Bowen

On March 20, the People’s Bank of China authorized the National Interbank Funding Center to announce that the loan prime rate (LPR) for the day was: 1-year LPR at 3.0%, and over 5 years at 3.5%. These LPRs are valid until the next release.

The latest rates are unchanged from the previous period. Wang Qing, Li Xiaofeng, and Feng Lin from Orient Securities jointly believe that since the beginning of the year, LPR quotes have remained steady, mainly because the macroeconomic start in 2026 has been strong, and the current demand for stable growth is not high.

CITIC Securities Chief Economist Ming Ming’s team analyzed that the policy stance on total easing is clear, but the pace of easing depends on the central bank’s assessment of the recovery of the real economy and the progress of broad credit.

Current Monetary Policy is in an Observation Period

In March, the LPR quotes for two maturities remained unchanged, meeting market expectations. Wang Qing, Li Xiaofeng, and Feng Lin from Orient Securities believe there are two direct reasons.

First, the pricing basis for the LPR has not changed. Since the last LPR quote, the policy rate (the 7-day reverse repo rate) has remained stable, indicating that the basis for March’s LPR has not changed, largely suggesting that the LPR will stay steady this month.

Second, there is little motivation to actively lower the LPR. Due to the People’s Bank of China’s large-scale liquidity injections via MLF (Medium-term Lending Facility) and reverse repos before the Spring Festival, including 1.9 trillion yuan of medium-term liquidity, recent market rates such as the yield on 1-year AAA-rated bank interbank certificates of deposit have slightly declined. However, latest data shows that by the end of Q4 2025, banks’ net interest margins remain at a historic low of 1.42%. Considering the re-pricing of loans at the start of the year, net interest margins in Q1 2026 may face some narrowing pressure. This means that the recent slight decline in wholesale funding costs for banks has not yet been enough to prompt active lowering of the LPR.

Wang Qing, Li Xiaofeng, and Feng Lin believe that since the beginning of the year, the steady LPR quotes are mainly due to the strong macroeconomic start in 2026, driven by factors such as significantly better-than-expected exports, improved domestic consumption and investment in January and February, and rapid development in new productive sectors including high-tech manufacturing. Meanwhile, the People’s Bank of China launched a package of structural monetary policies in January to strengthen support for key areas like technological innovation and small micro enterprises. These factors indicate that monetary policy remains in an observation phase, with the first quarter’s policy rates and LPR remaining stable.

CITIC Securities Chief Economist Ming Ming’s team analyzed that, as of now, the central bank’s attitude toward aggregate tools remains “flexible and efficient use of reserve requirement ratio cuts and interest rate reductions,” while the intermediate target on prices is “to promote low overall financing costs in society.” Therefore, although the stance on total easing is clear, the actual pace depends on the central bank’s flexible judgment of the recovery of the real economy and the progress of broad credit. “Looking at the macroeconomic data released in March, indicators such as inflation, exports, credit, and overall economic performance show positive signs. In other words, the urgency to cut interest rates may not be high.”

Continuing to Implement Moderate Easing Monetary Policy

The government work report this year mentions continuing to implement a moderately easing monetary policy. It emphasizes promoting stable economic growth and reasonable price increases as key considerations, using flexible and efficient tools like reserve requirement ratio cuts and interest rate reductions, maintaining ample liquidity, and aligning social financing scale and money supply growth with economic growth and inflation expectations.

Wang Qing, Li Xiaofeng, and Feng Lin from Orient Securities analyze that, considering macroeconomic and financial trends, the likelihood of implementing comprehensive interest rate cuts this year is relatively high, expected to occur around mid-year, with a reduction of 10 to 20 basis points, which will lead to a follow-up decrease in the LPR. “This will be an important step to boost consumption, expand investment, and effectively hedge against external uncertainties.”

The team also predicts that, influenced by geopolitical fluctuations and ongoing anti-inflation policies, prices will rise modestly in 2026, but CPI (Consumer Price Index) growth will remain low. There is ample room for monetary policy to remain moderately easing, including interest rate cuts. Additionally, the Federal Reserve is expected to further cut rates in 2026, and the impact of exchange rate factors on domestic monetary policy adjustments is diminishing.

Furthermore, the team suggests that in 2026, efforts should be made to stabilize the real estate market. It is likely that regulators will guide a significant downward adjustment of the 5-year and above LPR quotes, combined with fiscal subsidies, to promote larger reductions in mortgage rates. This is a key move to address the current high mortgage rates, stimulate housing demand, and reverse market expectations.

CITIC Securities Chief Economist Ming Ming’s team believes that the central bank’s easing cycle will likely continue, but with the impact of input-driven inflation factors like oil prices, the use of total easing tools may focus more on appropriate timing.

The “Daily Economic News” reports that on March 19, the People’s Bank of China announced it will continue to implement a moderately easing monetary policy. It emphasizes promoting stable economic growth and reasonable price increases, leveraging both incremental and stock policies, as well as the integration of monetary and fiscal policies. It will use tools such as reserve requirement ratio adjustments, government bond operations, MLF, and reverse repos to maintain ample liquidity, ensuring that social financing and money supply growth align with economic growth and inflation expectations. The central bank will also guide and regulate interest rates based on economic and financial conditions, strengthen the implementation and supervision of interest rate policies, standardize financing intermediary costs, and promote low overall financing costs.