China Holds Key Lending Rates Steady as Economy Struggles

Chinese banks decided to keep their benchmark lending rates unchanged yesterday for the third consecutive month. This decision reflects the efforts of the Chinese government to stabilize the yuan, especially during a time when officials are pledging to reduce interest rates to bolster the economy.

As reported by NikkeiAsia, the People’s Bank of China (PBOC) announced that the one-year loan prime rate (LPR), which is the key rate for corporate lending, will remain at 3.1%. Additionally, the five-year benchmark rate for mortgages is also unchanged at 3.6%. The LPR is recalculated by the central bank every month based on the quotes submitted by 20 major commercial banks.

According to the Japanese economic agency, investors are anticipating that the PBOC will implement more aggressive interest rate cuts this year. This expectation follows a December meeting where the country’s top leadership shifted their monetary policy stance to a "moderately loose" approach to support economic growth. However, analysts from Nikkei caution that the expectations of monetary easing have led to government bond yields dropping to historic lows, which puts pressure on the yuan against the U.S. dollar.

Recently, the yuan reached its lowest value in 16 months in early January. In response, PBOC officials have promised to mitigate risks associated with potential "overshooting" of the exchange rate.

Moreover, the central bank has intensified its efforts to safeguard the currency as indicated by NikkeiAsia.

China, Lending, Rates