China Keeps Benchmark Lending Rates Steady For A Seventh Straight Month

Political

Economic

Summary:

China's central bank kept its loan prime rates steady on Monday, even as the world's second largest economy has seen weak economic data and an extended slump in its property sector.

BEIJING, CHINA - NOVEMBER 11: The national flag of China flies in front of the headquarters of the People's Bank of China (PBOC) on November 11, 2025, in Beijing, China. The PBOC serves as the country's central bank, overseeing monetary policy, financial regulation, and currency issuance. (Photo by Cheng Xin/Getty Images)

China's central bank kept its loan prime rates steady on Monday, even as the world's second largest economy has seen weak economic data and an extended slump in its property sector.

The People's Bank of China kept its 1-year and 5-year loan prime rates unchanged at 3% and 3.5% respectively, holding them for a seventh straight meeting, in line with a Reuters survey.

The 1-year rate acts as a benchmark for new loans, while the 5-year helps peg mortgage rates.

The PBOC's decision comes amid downbeat economic data from China in November, including lower-than-expected retail sales and industrial output.

Retail sales rose 1.3% last month from a year earlier, sharply missing Reuters' median forecast for a 2.8% growth, and slowing from 2.9% rise in the prior month.

Industrial production also missed expectations, climbing 4.8% in November from a year earlier compared with estimates for a 5% jump, and marking its weakest growth since August 2024.

China continues to reel from a protracted slump in its real estate sector. Investment in fixed assets, which includes property, contracted 2.6% over the January through November period compared with a year earlier, sharper than the 2.3% drop estimated by economists.

Prices of new homes also also continued to decline in November, showing persistent weakness in China's property sector.

New home prices fell 1.2% in tier-1 cities including Beijing, Guangzhou and Shenzhen while resale home prices dropped 5.8% from a year earlier.

Earlier this month, China's finance ministry said it planned to issue ultra-long-term special government bonds next year to fund construction of key projects and new infrastructure projects.

The country has been contending with deflationary pressures, and policymakers have vowed to "vigorously support the implementation of special actions to boost consumption."

An interim trade deal with the Washington that saw a suspension of prohibitive levels of tariffs on Chinese exports, however, could boost shipments to the U.S. and help the country realize its "around 5%" economic growth target for 2025.

Source: CNBC

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George Anderson

China left benchmark lending rates unchanged for the seventh consecutive month in December on Monday, matching market expectations.

The one-year loan prime rate (LPR) was kept at 3.00%, while the five-year LPR was unchanged at 3.50%.

In a Reuters survey of 25 market participants conducted last week, all participants predicted no change to either of the two rates.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.

Reporting by Shanghai Newsroom; Editing by Christopher Cushing

Source: Reuters

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Economic

Market Optimism Turns to Disappointment After BOJ’s Cautious Messaging

On December 19, the Bank of Japan (BOJ) raised its short-term interest rate from 0.5% to 0.75% its second hike in 2025 and the highest policy rate since 1995. While this move ended decades of ultra-loose monetary policy and was widely anticipated by analysts, it failed to bolster the yen. Instead, the currency plummeted to a four-week low of 157.75 JPY/USD, reflecting growing investor disillusionment over the central bank’s cautious stance.

The BOJ’s post-meeting statement reiterated that core inflation would align with the 2% target in the second half of its forecast period through FY2027. However, it emphasized that real interest rates remain “significantly low” and provided no concrete timeline or pace for further hikes. This vagueness proved pivotal in driving bearish momentum on the yen, as markets had been hoping for stronger forward guidance.

Ueda’s Press Conference Lacked Hawkish Signals

The downward pressure on the yen intensified after BOJ Governor Kazuo Ueda’s press conference, which reinforced the bank’s reserved posture. His comments, which stated only that “the door remains open” for future tightening, were perceived as indecisive and insufficient to counteract global inflationary dynamics or narrowing rate differentials.

Traders reacted quickly. The yen weakened across the board, hitting record lows against several major currencies. The euro rose to an all-time high of 184.69 JPY/EUR, the Swiss franc surged to 198.3 JPY/CHF, and the British pound reached 210.99 JPY/GBP its strongest level against the yen since 2008. These dramatic moves highlighted the yen’s vulnerability to speculative positioning in the absence of clear BOJ policy signals.

Why a Rate Hike Failed to Strengthen the Yen

The primary reason the rate hike failed to support the yen lies in market perception of the BOJ’s resolve. Despite nominally raising rates, the BOJ’s dovish tone signaled that future increases would be gradual and highly conditional. Marc Chandler, chief market strategist at Bannockburn Global Forex, summarized the mood: “The BOJ didn’t sound tough enough. They delivered the hike, but not the conviction.”

In contrast, other major central banks remain either on pause at much higher levels or, in some cases, still contemplating further tightening. The Fed, for instance, maintains its target rate at 5.25–5.5%, creating a stark yield gap that continues to drive capital away from yen-denominated assets. As a result, the yen remains a favored funding currency in global carry trades.

Speculation Rises on Potential Currency Intervention

With the yen once again nearing intervention levels having dropped past 155 JPY/USD in November and previously triggering government action at 161.96 in July 2024 speculation is mounting that Tokyo could re-enter the market. Finance Minister Satsuki Katayama warned on Friday that the government is prepared to act against “excessive volatility,” particularly those driven by speculative activity.

Such statements, however, are losing their deterrent power. Without coordinated fiscal or monetary policy shifts, verbal intervention alone may be insufficient to halt speculative trends.

Structural Weaknesses and Policy Constraints Remain

Beyond immediate rate dynamics, the yen’s weakness also reflects deeper concerns about Japan’s long-term economic resilience. Elias Haddad, global market strategist at BBH, noted that the BOJ’s own assessments suggest a low threshold for future hikes. The central bank believes wage inflation remains contained and real policy rates are still well below neutral. This reinforces the market’s belief that Japan will not match the hawkish trajectories seen in other developed economies.

Moreover, Japan’s aging demographics, stagnant productivity, and low trend growth continue to act as structural headwinds. These factors limit the BOJ’s appetite for aggressive normalization, especially with the economy teetering between low growth and rising cost pressures.

Rate Hike Without Commitment Weakens Policy Credibility

The yen’s sharp decline following the BOJ’s rate hike underscores the importance of forward guidance and policy conviction in modern monetary strategy. Markets no longer react solely to rate decisions but scrutinize central banks’ messaging, intent, and perceived resolve.

Without clearer communication on future tightening or more aggressive action to close the rate gap with global peers, the yen may continue to face downward pressure. Japan’s policymakers must now weigh the costs of inaction against the risks of currency instability, especially as import-driven inflation threatens to erode household spending and undermine the fragile post-pandemic recovery.

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Policy Easing in Line with Expectations, but Below Market Hopes

On December 19, the Central Bank of Russia (CBR) reduced its benchmark interest rate from 16.5% to 16%, a move widely anticipated by analysts following signs of slowing inflation. However, the magnitude of the cut disappointed some market participants who had priced in a deeper reduction, reflecting frustration over the current sluggish pace of economic recovery.

This 50 basis point cut comes after a period of monetary tightening that had seen rates rise to suppress inflationary pressures in a volatile fiscal environment. Although inflation slowed in November, consumer expectations remain elevated, adding complexity to the central bank’s balancing act between economic stimulus and price stability.

Inflation Trajectory Remains Volatile and Politically Sensitive

The CBR acknowledged that while core price growth has decelerated, inflation expectations have edged higher in recent months—a sign that public sentiment has yet to align with official metrics. This divergence is especially concerning in light of planned tax hikes in early 2026, which are expected to reignite upward price pressures.

Despite projecting inflation to fall to its 4% target by 2027, the bank emphasized that "geopolitical factors" continue to introduce major uncertainty. These could include prolonged sanctions, currency volatility, or trade disruptions that would directly impact supply chains and input costs. As a result, the CBR is approaching the current disinflationary trend with caution.

Governor Nabiullina Signals Cautious Optimism, Not Victory

CBR Governor Elvira Nabiullina reiterated the cautious tone, warning that it is far too early to declare victory over inflation. Using a marathon analogy, she emphasized that "the second half of the race is harder than the first," highlighting the risk of complacency after a single month of low inflation. Her remarks reflect a reluctance to ease policy too aggressively, given the fragile credibility of inflation management amid geopolitical instability.

From a growth perspective, Russia’s economy remains underwhelming. GDP is growing at only 1% annually, a rate considered insufficient by both domestic businesses and international economists. Analysts such as Evgeny Kogan argue that interest rates need to drop to at least 12–13% to meaningfully stimulate investment and consumer demand.

This sentiment is echoed in corporate circles, where high borrowing costs are hampering capital expenditures and deterring credit expansion, especially for small and medium-sized enterprises that are vital to Russia’s domestic resilience.

Geopolitical Risks and Structural Constraints Complicate Outlook

Even as inflation eases in the short term, the broader macroeconomic environment remains constrained by sanctions, restricted access to global capital markets, and subdued trade prospects. These structural limitations continue to weigh on Russia’s potential growth rate, meaning that monetary easing alone may have limited impact without parallel fiscal and structural reforms.

Moreover, the upcoming fiscal tightening in 2026, including higher taxes, may further suppress demand, reducing the effectiveness of lower interest rates. In this context, analysts are watching for signs of more aggressive rate cuts in future meetings, though any such decisions will depend heavily on the geopolitical landscape and fiscal execution.

A Tactical Adjustment, Not a Strategic Shift

The Central Bank of Russia’s latest rate cut represents a cautious pivot amid fragile disinflation and stagnant economic momentum. While it offers modest relief to borrowers, the decision falls short of addressing deeper growth constraints. Without a stronger monetary response or broader policy coordination, the economy risks drifting in a low-growth, high-uncertainty environment.

Going forward, the CBR will need to navigate a narrow policy corridor—stimulating the economy without reigniting inflation, maintaining financial stability without undermining currency credibility, and adapting to unpredictable geopolitical pressures that continue to shape Russia’s economic trajectory.

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Rate Hike Fails to Rescue Yen Amid Aggressive Market Reaction

In a move that surprised many, the Bank of Japan raised its policy interest rate on December 19 from 0.5% to 0.75% the highest level in 30 years. Contrary to conventional expectations that a rate hike would strengthen the yen, the currency plummeted within hours. From 155 yen to the U.S. dollar in the morning, the rate fell to 156.7 by midday, and later tumbled further to 157.7 on the New York market. The yen simultaneously lost around 3 units against the euro, amplifying Japan’s imported inflation burden.

This unexpected depreciation raises questions about the credibility and effectiveness of the Bank of Japan’s monetary tightening strategy. Rather than restoring investor confidence, the hike was interpreted as too little, too late especially amid a global landscape where other central banks have already reached far higher rate plateaus.

Widening Gap with the Fed Weakens Yen’s Appeal

The persistent yield differential between Japan and the United States remains a core factor driving speculative yen outflows. Even after the hike, Japan’s benchmark rate remains significantly below the U.S. Federal Reserve’s target range of 5.25–5.5%. In relative terms, the yen continues to underperform as a carry-trade target, with investors borrowing cheaply in yen to invest in higher-yielding assets elsewhere. The rate hike, therefore, lacked the magnitude needed to reverse this dynamic, and may have inadvertently triggered a selloff among those expecting a stronger signal from the Bank of Japan.

Policy Vacuum Leaves Market Vulnerable to Speculation

Japan’s Finance Minister Katayama Satsuki publicly acknowledged the severity of the yen’s plunge but admitted the government has yet to formulate a concrete policy response. Her statement described the market’s movements as “unilateral, fast-paced, and potentially speculative,” signaling concern over volatility but offering no immediate intervention plan.

This lack of clarity reinforces the perception of a policy vacuum. Without a coordinated monetary-fiscal response, speculative pressures on the yen are likely to persist, and Tokyo’s repeated pledges of “monitoring the situation” have begun to lose market credibility. Traders and analysts interpret the absence of strong countermeasures as a green light for further testing the yen’s lower bounds.

SMEs and Equipment-Driven Industries Face New Pressure

The currency depreciation is proving particularly painful for small and medium-sized enterprises (SMEs), many of which rely on imported machinery and raw materials. A weaker yen inflates the cost of upgrading manufacturing equipment already strained by high inflation and tight capital availability compounding barriers to productivity and innovation in Japan’s vital industrial base.

Executives across Japan’s SME sector have voiced concern that the interest rate hike, while aimed at curbing inflation, is actually aggravating cost pressures, especially in an environment where domestic demand remains tepid and margins are thin.

Negative Feedback Loop Threatens to Entrench Stagflation

The broader economic implications are equally concerning. With businesses absorbing higher input costs and passing them on to consumers, inflation may accelerate further. This dynamic risks creating a new stagflationary loop: rising prices, stagnating growth, and now a weaker yen that inflates import costs.

Japan’s GDP has already slipped into negative territory for the first time in 18 months, with the latest data showing a -1.8% contraction on an annualized basis. If capital investment and consumer confidence continue to erode, the economy may struggle to recover its previous growth trajectory.

A Warning Sign, Not a Turning Point

The yen’s rapid depreciation following an interest rate hike serves as a cautionary tale in central banking. Far from stabilizing the economy, the move revealed the limitations of incrementalism in the face of structural weakness and global capital flows. Without a comprehensive strategy that addresses both speculative pressure and domestic stagnation, Japan risks entering a prolonged period of policy ineffectiveness.

To restore confidence, Tokyo will need more than cautious rate adjustments it must align monetary tightening with credible fiscal support, clearer communication, and proactive currency stabilization efforts. Until then, the yen’s decline may only deepen, dragging Japan’s recovery prospects down with it.

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A Historic Budget Pivot for a Changing Continent

As geopolitical tensions, technological rivalry, and economic instability reshape the global order, the European Union is pushing forward with its most ambitious and controversial budget overhaul to date. The proposed multi-annual financial framework for 2028–2035, worth €2 trillion, marks a radical shift from legacy agricultural and regional subsidies toward strategic investment in defense, innovation, and global competitiveness.

This transformation signals a Europe that no longer sees itself primarily as a welfare mechanism for lagging regions but as a bloc preparing for existential challenges cybersecurity, technological sovereignty, energy transition, and military readiness.

New Priorities and the Decline of Legacy Subsidies

Symbolically and structurally, the EU is moving away from its historical budget pillars. The Common Agricultural Policy (CAP), once accounting for 70% of total expenditure, will see a further 20% reduction, down from its current share of 30%. Likewise, the so-called "cohesion funds" for poorer regions face a 10% cut, with both funding streams merged into a single "national envelope" a move intended to grant member states greater fiscal autonomy.

The European Commission justifies this consolidation as a way to boost flexibility and avoid redundant program overlap. However, critics in the European Parliament warn that such flexibility may dilute transparency, erode predictability, and weaken protections for traditionally supported groups, particularly small farmers and regional authorities.

Farm lobbies across the bloc have condemned the CAP cuts, warning of risks to food security. Regional leaders express concern that merging subsidies may increase competition for limited funds, exacerbating internal inequalities.

Strategic Reallocation Intensifies Inequality Concerns

While legacy funding faces cutbacks, areas tied to Europe’s strategic future receive major boosts. A proposed €409 billion European Competitiveness Fund includes a dramatic increase in science research spending up to €175 billion and a fivefold surge in defense investment to €130.7 billion. Sizable allocations are also expected for green tech, digital infrastructure, and health innovation.

Yet these competitive funding mechanisms raise distributional concerns. Advanced member states home to major startups, elite research universities, and established industrial ecosystems are poised to win a disproportionate share of new funding. This design could further marginalize smaller economies and less developed regions, intensifying the gap the EU has historically tried to close.

A Fractured Political Landscape: North–South Divide Resurfaces

Opposition from net contributors, particularly Germany, reveals growing cracks in fiscal consensus. Berlin firmly rejects both the expansion of the overall budget and renewed proposals for collective EU borrowing. Germany, along with the Netherlands and Sweden, insists that the €800 billion joint debt issued during the pandemic remain a one-time emergency tool not a precedent for future fiscal integration.

Germany also demands the continuation of the "rebate mechanism" that reduces its net contribution an arrangement the European Commission wants to eliminate for fairness. This has become a key point of contention, highlighting diverging visions of shared responsibility within the bloc.

Controversial New Revenue Sources Spark Debate

To finance the revamped budget, the Commission proposes new EU-wide taxes, including levies on e-waste, small import parcels, tobacco, and profits of large corporations. While these proposals aim to enhance fiscal independence and reduce reliance on national contributions, critics argue they run counter to the competitiveness agenda by increasing the regulatory burden on businesses.

A particularly divisive proposal involves tying budget disbursement to compliance with EU rule-of-law principles. Under this model, member states must demonstrate adherence to democratic governance, judicial independence, and anti-corruption standards to access funds. Hungary has already seen hundreds of millions of euros frozen under this mechanism.

Critics argue this approach creates political leverage for Brussels but risks alienating already Euroskeptic governments. Cities like Budapest, caught between domestic centralization and EU restrictions, face double barriers to accessing essential development funds.

The EU at a Crossroads: Reform or Fragmentation

The sweeping budget proposal reflects an EU attempting to transition from a solidarity-focused structure into a leaner, more strategically oriented bloc. For proponents, it is a vital reset one that aligns the Union with 21st-century priorities and strengthens its global stance. For detractors, it represents a dangerous reordering that sidelines social cohesion in favor of technocratic ambition.

While debates will continue well into the legislative process, the stakes are clear. Europe's internal unity is being tested not by external threats alone, but by its own redefinition of purpose, priorities, and power. The outcome of these negotiations will shape the Union's identity for decades to come.

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AI’s Power Appetite Reshapes Energy Infrastructure

As artificial intelligence continues to fuel a rapid expansion of global data centers, the surge in electricity demand is prompting major U.S. tech firms to secure their own energy sources. To avoid dependency on overstretched national power grids, these companies are increasingly turning to self-sufficient natural gas and hydrogen power plants. This move toward distributed energy systems is creating a significant opening for South Korea’s industrial and clean energy sector.

Doosan Energy has become one of the primary beneficiaries of this shift. According to energy industry sources, the firm recently secured a contract to deliver three high-capacity gas turbines each with up to 380 MW output for a U.S. data center project commissioned by a major American tech conglomerate. Delivery is scheduled between 2027 and 2028, marking a critical step in Doosan’s expansion from domestic projects to the competitive North American market.

Global Turbine Market and South Korea’s Competitive Entry

Only five companies globally can manufacture utility-scale gas turbines: GE Vernova (U.S.), Siemens (Germany), Mitsubishi Power (Japan), Ansaldo (Italy), and Doosan Energy (South Korea). With AI pushing global demand for energy-dense, decentralized power solutions, and with capacity constraints affecting traditional players like GE and Siemens, South Korean firms are seizing the gap.

Gas turbines play a pivotal role in high-output electricity generation. By combusting natural gas or hydrogen, they generate high-temperature, high-pressure gas streams that spin generators, supplying electricity directly to data centers. Doosan’s entry into the U.S. market signifies a diversification of energy procurement options and a rebalancing of global turbine manufacturing power.

Hydrogen Fuel Cells: A Resilient Backup and Sustainable Ally

Alongside gas turbines, hydrogen fuel cells are gaining traction as sustainable, high-efficiency energy sources that complement the needs of always-on digital infrastructure. Unlike batteries, hydrogen fuel cells continuously generate electricity through electrochemical reactions between hydrogen and oxygen, achieving operational efficiency up to 95% and allowing uninterrupted power supply without the need for recharging.

Doosan Fuel Cell, SK Ecoplant, and HD Korea Shipbuilding & Offshore Engineering are among the South Korean leaders positioned to benefit from this trend. Doosan Fuel Cell, in particular, has already commercialized large-scale hydrogen fuel cell power plants, including Busan Green Energy and Daesan Hydrogen Fuel Cell facilities completed in 2020.

The company’s roadmap includes expanding manufacturing capabilities, with a 50 MW plant under development in partnership with British firm Ceres Power. By mid-2025, Doosan had invested over 155 billion won into this venture, aligning production capacity with rising demand from AI-linked infrastructure development.

Hydrogen Push Accelerates with Corporate Backing

In parallel, SK Ecoplant has installed hydrogen fuel cells at its own Bupyeong data center, using them as auxiliary power systems. Meanwhile, HD Korea Shipbuilding’s newly formed subsidiary, HD Hydrogen, represents another strategic pivot. With a 140 billion won investment in July 2024 and a €72 million acquisition of Finnish fuel cell systems firm Convion, HD Hydrogen is fast-tracking its commercialization pipeline.

This industry-wide pivot aligns with forecasts from the International Energy Agency (IEA), which projects that much of the new energy demand from U.S. data centers over the next decade will be met by natural gas-powered plants. Given the long construction timelines of data centers (typically 18 months), Korean firms that can scale up quickly with proven technology and reliable partnerships are positioned for significant gains.

Strategic Implications: From Export Manufacturing to Global Energy Players

The ongoing AI boom is not just transforming data science it is redrawing the global energy landscape. For South Korea, this represents a rare convergence of industrial strength and geopolitical relevance. Doosan Energy and its peers are transitioning from equipment suppliers to central players in the decarbonized, decentralized, and data-driven power architecture of the future.

Moreover, the cross-border nature of these deals particularly with leading U.S. technology firms positions South Korean companies not just as manufacturers but as co-architects of a new energy paradigm. As U.S. firms race to secure clean, independent power sources for AI computing, Korean firms are fast becoming indispensable partners in building resilient, scalable energy ecosystems.

A Technological Shift Becomes a National Advantage

The AI-driven energy transformation is unlocking strategic opportunities for South Korea’s advanced manufacturing and clean energy sectors. With gas turbines and hydrogen fuel cells at the heart of data center infrastructure, firms like Doosan Energy, Doosan Fuel Cell, SK Ecoplant, and HD Hydrogen are emerging as key suppliers to the world’s next-generation power systems.

What began as a domestic industrial effort has now positioned Korea at the intersection of energy security, digital transformation, and global supply chain realignment. As the AI race continues, so too does the rise of Korea’s energy champions on the international stage.

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