The Loan Prime Rate (LPR) for July remained steady.

On July 20, the People's Bank of China authorized the National Interbank Funding Center to announce the latest LPR: the 1-year LPR is 3.0% and the 5-year and above LPR is 3.5%, both unchanged from the previous month. This marks the 14th consecutive month that the LPR has remained unchanged since the simultaneous 10-basis-point cut for both tenors in May 2025.

Experts interviewed noted that the probability of policy interest rates remaining stable within the year is relatively high. However, if there is a significant weakening of external demand or a risk of economic deceleration in the second half of the year, a rate cut could be initiated, leading to a corresponding downward adjustment in the LPR.

Unchanged Quote Aligns with Market Expectations

In the view of industry experts, the prolonged stability of the LPR is due, on one hand, to unchanged pricing fundamentals, and on the other hand, to continued pressure on net interest margins, which reduces commercial banks' motivation to lower their LPR quotes.

Wen Bin, Chief Economist at China Minsheng Bank, pointed out that the economic fundamentals still have supporting factors. While second-quarter GDP grew 4.3% year-on-year, slowing from 5.0% in the first quarter, the overall growth rate for the first half of the year was 4.7%, and positive factors remain supportive. Monetary policy is focused more on creating a suitable monetary and financial environment.

"Newly issued loan rates for both enterprises and personal housing in June continued the low levels seen in May. Coupled with the fact that June's CPI year-on-year growth only slightly declined while PPI year-on-year growth continued to rise, the real interest rates for various loans are still declining, and their supportive role for the real economy persists. Therefore, the necessity for directly lowering policy interest rates is not high," Wen Bin analyzed.

"More importantly, the latest data shows that, affected by the repricing of some loans at the beginning of the year, the net interest margin of commercial banks at the end of the first quarter of 2026 was 1.40%, down 0.02 percentage points from the end of the previous year, hitting another historical low. This means that from the perspective of stabilizing interest margins, quoting banks currently lack the motivation to actively reduce the LPR quote spreads," said Wang Qing, Chief Macro Analyst at Golden Credit Rating.

Wang Qing noted that the unchanged LPR quotes for both tenors in July are in line with market expectations. Overall, the recent monetary policy is still in an observation period, which is the fundamental reason why the policy interest rate and LPR quotes were not adjusted in July.

High Probability of Stable Policy Rates Within the Year

On July 15, the State Council Information Office held a press conference to introduce the implementation of monetary policy and financial statistics for the first half of 2026. At the conference, Zou Lan, Deputy Governor of the People's Bank of China, stated that in the next stage, the People's Bank will continue to implement an appropriately accommodative monetary policy. Based on the domestic and international economic and financial situation and financial market operations, it will manage the intensity, pace, and timing of monetary policy implementation, increase counter-cyclical and cross-cyclical adjustments, focus on expanding domestic demand and optimizing supply, enhance the endogenous driving force of economic development, continuously consolidate and expand the momentum of stable and improving economy, and effectively support a good start for the 15th Five-Year Plan.

Looking ahead to the second half of the year, is there room for the LPR to decline?

Wen Bin pointed out that the central bank will enhance the foresight, flexibility, and targeted nature of its policies, with the LPR adjusting based on the policy interest rate as circumstances dictate. Currently, the probability of policy interest rates remaining stable within the year is relatively high. However, if there is a significant weakening of external demand or a risk of economic deceleration in the second half of the year, a rate cut could be initiated, leading to a corresponding downward adjustment in the LPR.

Wang Qing judged that in the second half of the year, while structural monetary policy tools such as relending for technological innovation and technological transformation, and relending for supporting agriculture and small businesses are further strengthened, and efforts continue in the "five major articles" including technology finance and inclusive finance, the central bank is expected to implement a policy rate cut around the end of the third quarter, with the cut expected to be 10 basis points. This will lead to a follow-on reduction in various major market interest rates, including LPR quotes, further lowering financing costs for enterprises and residents. This is an important measure in the second half of the year to boost consumption, expand investment, and effectively counter external uncertainties.

"Finally, efforts are still needed to stabilize the real estate market in the second half of the year. Later, the possibility cannot be ruled out of guiding a significant reduction in the 5-year and above LPR quote through targeted measures, combined with fiscal interest subsidies, to promote a significant reduction in residential mortgage rates. This is a key move at this stage to alleviate the problem of high actual residential mortgage rates, stimulate market demand for home purchases, and reverse market expectations for the property sector," Wang Qing concluded.