Leading international investment banks have abandoned their predictions for Chinese interest rate reductions this year, now forecasting that Beijing will maintain current rates as the nation demonstrates economic stability despite ongoing Middle East tensions.
The shift in expectations comes as China demonstrates stronger performance compared to neighboring countries during the Iran conflict, with economic indicators pointing toward recovery.
Goldman Sachs China economist Xinquan Chen explained the rationale behind the revised outlook in a recent analysis. “Against the backdrop of China’s relative resilience amid Hormuz disruptions, better-than-expected activity data in January-February, and the producer price index (PPI) likely turning positive in March, we see no clear catalyst for a policy rate cut in 2026,” Chen stated.
Chen confirmed Goldman Sachs is “removing our call for a 10-basis-point (bps) rate cut in the third quarter from our baseline,” though the bank continues to anticipate a 50 basis point decrease in required bank reserves.
Unlike numerous nations dealing with rising inflation pressures, China continues to face deflationary challenges, providing flexibility to address inflation concerns driven by increasing oil costs. Additionally, China’s substantial oil and gas stockpiles provide protection against energy supply disruptions.
Standard Chartered’s head of Greater China and North Asia economic research, Shuang Ding, emphasized China’s relative insulation from regional conflicts. “Middle East conflicts certainly had an impact on China, but it will be smaller than on other countries,” Ding noted.
“China has effectively ruled out the possibility of interest rate cuts (for now), and there is no need for interest rate hikes in the short term,” he added.
Following Tuesday’s agreement between the United States and Iran on a two-week ceasefire, market observers noted that China’s domestic policy adjustments since the Iran conflict began have remained measured, primarily limited to fuel price modifications.
China’s central banking authority has committed to sustaining an “appropriately loose” monetary approach throughout this year, utilizing various mechanisms including reserve requirement adjustments and interest rate tools to ensure sufficient market liquidity.
Banking sector indicators have demonstrated strong liquidity levels since early this month, with overnight repo rates reaching near three-year minimums and seven-day repo rates dropping below the primary policy rate.
ANZ analysts reinforced the trend toward stable rates in their assessment. “As the growth momentum is within the policy target, we no longer expect policy rate cuts in both 2026 and 2027,” the analysts concluded.
