China maintained its key lending rates on Friday amid efforts to nurture economic growth and stabilize a weakening yuan.
The People’s Bank of China (PBOC) left the one-year loan prime rate at 3.1% and the five-year rate at 3.6%, decisions in line with expectations from economists polled by Reuters. The one-year rate influences corporate and household loans while the five-year focuses on mortgage rates.
This decision comes just after the U.S. Federal Reserve implemented a 25-basis-point rate cut on Wednesday, signaling only two potential rate reductions in 2025, down from four suggested earlier this year. Analysts believe the Fed’s adjustment on its rate decision outlook will have minimal impact on China’s policy direction. However, it might exert pressure on the yuan.
In light of economic challenges, Chinese leaders have recently advocated for increased monetary easing measures, including interest rate cuts, to boost growth. Despite the ongoing efforts and monetary stimuli, latest data highlights the persistence of deflationary pressures, subdued consumer demand, and a lingering slump in the property market.
Yan Wang from Alpine Macro suggested that the Federal Reserve’s easing measures might create an opportunity for China’s central bank to act, while underscoring the need for fiscal policies to catalyze economic growth. Wang also recommended further rate cuts by the PBOC to relieve the yuan’s deflationary pressure.
