The latest Loan Prime Rate (LPR) quotation has been announced, remaining unchanged for August. On August 20th, the People's Bank of China authorized the National Interbank Funding Center to release the newest LPR figures: the 1-year LPR stands at 3.0%, and the over-5-year LPR is 3.5%, both flat compared to the previous month. This marks the 15th consecutive month that these rates have remained unchanged.

Experts interviewed suggest that the central bank may implement policy rate cuts in the future, which could lead to a subsequent downward adjustment in LPR quotations. There is a possibility of a reserve requirement ratio (RRR) cut and interest rate reduction around the end of the third quarter. Meanwhile, as the framework of "multiple anchors running in parallel" with DR (deposit institutions' pledged bond repurchase rate) and LPR gradually matures, the efficiency of LPR quotations is expected to improve.

The pricing foundation for LPR remains unchanged

In May 2025, both tenors of the LPR were reduced by 10 basis points simultaneously. To date, they have remained unchanged for 15 consecutive months. Wen Bin, Chief Economist at China Minsheng Bank, pointed out that the current pricing foundation for LPR has not changed. There are still supporting factors for the economic fundamentals, and in the short term, monetary policy may focus more on precise liquidity management and the optimization of structural tools. Additionally, the supportive effect of actual loan interest rates remains in place.

"The pace of government bond issuance in August has not been fast, and the subsequent concentrated issuance will support the economy. Monetary policy will more likely cooperate with the smooth issuance of government bonds through precise and flexible liquidity management, and provide support on the financing supply side with structural tools," Wen Bin analyzed. "A broad-based rate cut policy still needs to consider 'maintaining interest rate margins,' especially given the recent pressure of liability duration management. Some large state-owned banks have restarted issuing 5-year certificates of deposit, and some small and medium-sized banks have raised deposit rates, which may exert marginal narrowing pressure on interest margins."

Furthermore, data from the National Financial Regulatory Administration on major regulatory indicators for commercial banks shows that as of the end of the second quarter of 2026, the net interest margin of China's commercial banks stood at 1.41%, an increase of 0.01 percentage points from 1.40% at the end of the first quarter. In the view of Wang Qing, Chief Macro Analyst at Golden Credit Rating, this is mainly driven by factors such as the repricing of some high-interest time deposits upon maturity.

"The net interest margin has rebounded for the first time since the first quarter of 2022, but it remains near historical lows. This implies that from the perspective of funding costs and net interest margins, current quoting banks still lack the motivation to proactively lower the LPR quotation spread," Wang Qing noted. "Although domestic investment and consumption momentum has weakened since the second quarter, and economic growth momentum has somewhat declined, macro policies have maintained strong resolve, and monetary policy remains in an observation period. This is the fundamental reason why the August LPR quotation was not adjusted."

Possible RRR cut and rate cut around the end of the third quarter

It is worth noting that following the first quarter's China Monetary Policy Implementation Report featuring a special column on the diversified benchmark interest rate system, the second quarter report explicitly proposed "promoting the diversification of loan pricing benchmarks and guiding financial institutions to improve their interest rate pricing capabilities." Since late July, regions including Hainan, Shenzhen, and Shanghai have successively launched the first batch of DR benchmark interest rate loans.

Wen Bin believes that as the "multiple anchors" framework of DR and LPR gradually matures, LPR quotations will focus more on loans with relatively longer tenors and higher risks, highlighting their nature as the most preferential loan rates. This will facilitate commercial banks in pricing tenors and risks more flexibly, thereby improving financing accessibility for enterprises.

"The shift of credit pricing to a 'LPR+DR' dual anchor means that market-based pricing for some loan interest rates will be higher in the later stage. On one hand, this is conducive to improving the efficiency of monetary policy transmission and accelerating the transmission of policy rates to loan rates. On the other hand, it can better meet the financing needs of different market entities—for large enterprises with significant short-term working capital needs and strong interest rate research and risk management capabilities, DR benchmark loans are more suitable for their credit needs," Wang Qing analyzed. "In the future, the 10-year government bond yield may also become the pricing basis for some loans, and the diversification of loan pricing benchmarks will be further advanced."

Is there still room for the LPR quotation to decline this year? Wang Qing believes that the central bank may implement policy rate cuts in the later period, which will drive LPR quotations to follow suit with downward adjustments. In the third quarter, the central bank will further leverage the policy effectiveness of the optimized and adjusted structural monetary policy tools from the beginning of the year. At the same time, it is possible that a new round of incremental policies will be introduced around the end of the third quarter. It is estimated that the rate cut could be 10 basis points, and the RRR cut could be 0.5 percentage points. This will lead to a follow-up downward adjustment in LPR quotations, serving as an important driver for promoting consumption, stabilizing investment, and boosting domestic demand in the second half of the year, and it is also of great significance for stabilizing the real estate market.