Insights 
VT 
The People’s Bank of China (PBOC) has kept its one-year and five-year Loan Prime Rate (LPR) unchanged. The current main policy rate, the reverse repo rate, stands at 1.4%.
Most loans in China are linked to the one-year LPR, while the five-year rate influences mortgage pricing. Both these rates experienced a 10 basis points reduction in May.
Loan Prime Rate Adjustments
Recent adjustments in LPR occurred following specific economic conditions. In May 2025, both the one-year LPR was set at 3.00%, and the five-year at 3.50%, a reduction of 10 basis points. Earlier, in February 2024, only the five-year LPR was cut by 25 basis points to 3.95% to aid the property sector.
In August 2023, coordinated easing measures led to cuts of 10 basis points for the one-year LPR and 15 basis points for the five-year LPR. June 2023 saw a decrease of 10 basis points in both rates. The shift in August 2022 included a 5 basis point reduction in the one-year LPR and 15 basis points for the five-year rate, aimed at mortgage support. In January 2022, the one-year LPR decreased by 10 basis points and the five-year by 5 basis points as part of the early 2022 easing measures.
The People’s Bank of China has held its key lending rates steady, signaling a pause after the last reduction we saw back in May 2025. For us, this suggests policymakers are now in a “wait-and-see” mode, assessing how that last 10 basis point cut is filtering through the economy. This stability may dampen immediate, sharp moves in yuan-denominated assets for the moment.
This decision comes despite some uneven economic signals we observed through the third quarter. For example, industrial production figures from August 2025 showed resilience, but new home prices in major cities continued their decline, falling 0.6% month-over-month according to the latest statistics. The hold on the mortgage-linked five-year rate indicates that authorities are hesitant to apply more broad monetary stimulus to the property sector right now.
Currency Market Implications
In the currency markets, this inaction provides a floor for the yuan, especially as the interest rate differential with the US dollar remains significant. The US Federal Reserve has maintained its own policy rate around 4.75% for much of 2025, so the PBOC’s decision to not cut further avoids adding more downward pressure on the USD/CNH pair. We should anticipate the yuan to trade within a tighter range in the coming weeks.
For those trading equity derivatives, the lack of a fresh rate cut may disappoint market participants hoping for a new catalyst for the CSI 300 and Hang Seng indices. Historically, we saw a notable market lift after the targeted 25 basis point mortgage rate cut in February 2024, but the market’s reaction to the more modest May 2025 cut was short-lived. This pause suggests traders might want to consider protective put strategies or position for range-bound trading in index futures.
While this hold reduces immediate event risk, it increases uncertainty about when, or if, the next policy move will happen before year-end. This can lead to a gradual increase in implied volatility on options tied to Chinese equities and the yuan. We believe focusing on longer-dated options could be a prudent way to position for a potential policy shift later in the fourth quarter.
