The central bank of the People’s Republic of China is responsible for formulating and implementing monetary policy, preventing and mitigating financial risks, and maintaining financial stability.
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The Chinese government kept its benchmark lending rate unchanged on Monday as it battles a weak yuan while waiting for policy cues from the incoming Donald Trump administration.
The People’s Bank of China kept the one-year loan prime rate unchanged at 3.1% and the five-year LPR at 3.6%, the central bank said in a statement.
The 1-year LPR determines interest rates for business and most residential loans, while the 5-year LPR serves as a reference for home loans.
The decision was made ahead of Donald Trump’s inauguration as the next US president on Monday.
“The government is willing to delay rate cuts and prioritize exchange rate stability,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
“The Chinese government is likely to assess the impact of U.S. trade policy in the coming weeks and decide how to respond after the Lunar New Year,” he added.
Mainland China’s benchmark CSI300 index rose 1.08% following the interest rate decision. The offshore yuan rose 0.20% to trade at 7.3244 yuan to the dollar, while the onshore yuan traded at 7.3157 yuan to the dollar. China’s 10-year government bond yield was flat at 1.661%, according to LSEG data.
Gary Ng, senior economist at Natixis, said “seemingly good growth rates” and a strong dollar prevented China from cutting rates on Monday. “China needs lower interest rates to boost demand, but policymakers want to avoid sharp declines in bond yields and the renminbi.”
Ng expects China to cut interest rates by 50 basis points this year, but the timing will depend on external financial conditions, including the US Federal Reserve’s easing measures.
The People’s Bank of China has recently strengthened measures to prevent currency depreciation that could cause excessive volatility, emphasizing the importance of exchange rate stability.
China’s offshore yuan has fallen more than 3% since Donald Trump won the presidential election in early November. The tightly controlled onshore yuan also fell to near its lowest level in 16 months.
of us dollar indexThe dollar, which compares the dollar with six other currencies, rose to near a 26-month high.
China’s economic activity accelerated more than expected in the final quarter of last year, as the stimulus measures announced by the Chinese government since September took effect and helped the economy reach its annual growth target.
Despite the positive headline numbers, economists say some potential growth boosters may be temporary amid weak consumer demand, a deepening downturn in the real estate market and the incoming Trump administration’s looming tariff hikes. warned that it could be something.
In September, People’s Bank of China Governor Ban Gongsheng suggested the possibility of lowering the reserve requirement ratio by the end of 2024, depending on market liquidity conditions. RRR determines the amount of cash a bank must hold in reserves.
However, despite the People’s Bank of China’s shift to a “moderately accommodative” policy stance, the cuts have yet to materialize.
Helen Chao, chief Greater China economist and head of Asian economics at BofA Global Research, said in a note last Thursday that short-term policy moves by the central bank may depend on President Trump’s trade policy announcements. said that it was high.
“The potential surprise of an immediate and sharp increase in tariffs would require a more rapid policy response,” he added.
The People’s Bank of China lowered short- and long-term lending rates in July, followed by a widely expected 25 basis point cut in October, surprising markets. The central bank kept lending rates unchanged in November and December.
As of Monday, markets had eased their expectations for the number of rate cuts this year from the U.S. Federal Reserve, with most pricing in just one quarter of rate cuts in 2025, according to the CME FedWatch tool.
