China holds key lending rates steady in June despite economic headwinds; here’s what we know

China decided to hold its benchmark lending rates steady, as expected, on Friday. Beijing had rolled out many measures last month to make borrowing cheaper and boost the economy.

What are these rates?

Reuters reported that the one-year loan prime rate (LPR), which influences the interest on most new and outstanding loans, was kept at 3.00 per cent.

On the other hand, the five-year LPR, which is important for pricing mortgages, was unchanged at 3.50 per cent, according to a Reuters report.

Reasons for no change

Financial experts and market watchers were pretty confident that China would not change these rates this month. In a recent Reuters poll of 20 market participants, the news agency said, all participants predicted no change to either of the two rates.

The decision comes after China already lowered LPRs last month, the first time they did so since October. At that time, major state-owned banks also reduced their deposit rates.

These moves were all part of a bigger plan by the authorities to lower borrowing costs and help cushion the Chinese economy, especially from the impact of the trade tensions with the United States, Reuters reported.

China’s economic health faces challenges

China’s economy is currently dealing with a complex situation. While official figures show robust GDP growth of 5.4 per cent in Q1 2025, with GDP reaching $4.4 trillion, there are ongoing challenges.

Economic Times reported that experts remain cautious, citing subdued household demand and weak consumption trends as the cause of deflationary pressure.

China's weak domestic demand stems from lower incomes, a weak social security net that leads to people putting more savings towards education and healthcare, and limited alternative investment options due to an underdeveloped stock market. These have pushed households to invest heavily in real estate, the news agency reported.

Due to all these issues, China is currently focusing on attracting foreign investors, boosting inward tourism, and strengthening innovation and technology.