The Loan Prime Rate (LPR) has held steady for the sixteenth straight month. On September 20th, the People's Bank of China authorized the National Interbank Funding Center to release the updated LPR quotes: the 1-year tenor remained at 3.0%, unchanged from the previous month, while the over-5-year tenor stayed at 3.5%, also unchanged from August. Several analysts noted that this stability aligns with market expectations, reflecting a prudent choice shaped by domestic economic fundamentals, banking sector profitability pressures, and tightening overseas monetary policies.

The LPR remained unchanged this month, with the direct cause being the stability of its pricing anchor. The LPR is tied to the 7-day reverse repurchase rate, a policy rate that has remained steady at 1.40% since a cut in May 2025, leaving the pricing basis unchanged. Wang Qing, Chief Macro Analyst at Golden Credit Rating, stated that the stable pricing foundation of the September LPR largely signaled that the month's quote would remain unchanged. The pressure on commercial banks' net interest margins is another key factor preventing quoting banks from actively reducing the spread. Data indicates that, possibly due to recent continued rollovers of outright reverse repos and minimal or zero 7-day reverse repo operations earlier, the average daily interbank overnight funding rate DR001 has edged up month-on-month since September, while yields on 1-year certificate of deposits (AAA-rated) for commercial banks have also ticked higher. Meanwhile, the second-quarter net interest margin for commercial banks rebounded slightly by 0.01 percentage points from Q1 to 1.41%, marking the first improvement since Q1 2022, though it remains near historical lows.

Dong Ximiao, Chief Economist at Merchants Union Consumer Finance, commented that quoting banks lack the willingness to compress spreads, prioritizing operational stability and risk prevention. Wang Qing echoed this, noting that recent wholesale funding costs for commercial banks in the money market have risen. From the perspective of funding costs and net interest margins, quoting banks still lack the motivation to proactively lower LPR spreads. The resilience of the macroeconomic landscape also reduces the urgency for LPR cuts. Wang Qing believes that the steady LPR since early this year is underpinned by H1 GDP growth of 4.7%, falling within the annual target range of 4.5% to 5.0%, while new quality productive forces, exemplified by high-tech manufacturing, are accelerating. This suggests that despite weaker domestic investment and consumption trends since Q2 and some decline in economic growth momentum, macro policy has maintained strong discipline, with monetary policy remaining in a wait-and-see phase. This is the fundamental reason the September LPR was left unchanged.

Wen Bin, Chief Economist at China Minsheng Bank, highlighted that economic fundamentals retain their resilience: August exports remained robust, with year-on-year growth exceeding 20% for a third consecutive month and accelerating from July; August industrial value-added growth rebounded noticeably, with manufacturing, high-tech industries, and equipment manufacturing providing support, while the contraction in mining narrowed significantly. The production and new orders sub-indices of the manufacturing PMI have risen above the boom-bust line. Supported by government bonds and policy financial instruments, monetary policy is likely to focus on liquidity support in the near term. Before the latest LPR announcement, the Federal Reserve raised interest rates by 25 basis points, lifting the federal funds target range to 3.75%–4.00%. This widened the negative China-US rate spread, adding pressure on the yuan exchange rate and cross-border capital flows, thereby strengthening external constraints on lowering the LPR.

Dong Ximiao believes this objectively narrows the scope for domestic rate cuts and LPR reductions, making a near-term decline less likely. However, external tightening does not alter the domestic monetary policy stance. Wen Bin pointed out that the European Central Bank and the Bank of Japan both implemented rate hikes in June and September, and the Fed raised its target range in September, leading to higher overseas bond yields. Despite this, China's bond market yields have operated smoothly, and the yuan exchange rate has maintained a stable-to-appreciating trend, with minimal impact. Wen Bin noted that the performance of bond yields and the yuan reflects the high safety attributes of Chinese assets, supporting a policy framework focused on domestic priorities. Future adjustments to policy rates will still depend on economic fundamentals and commercial banks' net interest margins, with LPR quotes likely to move in tandem with policy rates.

As for the future path of the LPR, Wen Bin suggests that with new corporate and mortgage loan rates already at low levels in August, alongside a mild rebound in CPI and PPI year-on-year growth, real interest rates on various loans have edged down, strengthening support for the real economy and reducing the need for direct policy rate cuts. Dong Ximiao concluded that, overall, the Fed's rate hike has reinforced external constraints, keeping the LPR likely unchanged in the near term; whether it falls in the future will depend on domestic economic recovery, price trends, bank interest margins, and shifts in the external environment. Ultimately, China's monetary policy toolbox remains well-equipped, with ample room and potential for further implementation.