Amid mounting economic challenges and geopolitical uncertainties, China’s central bank has chosen to maintain its benchmark lending rates, leaving both the 1-year and 5-year loan prime rates unchanged.
The People’s Bank of China (PBOC) announced on Monday that the 1-year loan prime rate remains at 3.1%, while the 5-year rate stays firm at 3.6%.
The decision arises as China grapples with a declining yuan, which has been under pressure since Donald Trump won the U.S. presidential election in November. The offshore yuan has depreciated by over 3% against the dollar, while the onshore yuan has slid close to a 16-month low.
These rates, crucial for determining borrowing costs for many corporate and household loans, are key tools in China’s economic strategy. The 5-year LPR serves as a reference point for mortgage rates, directly impacting China’s property market.
China’s economy showed stronger-than-expected growth in the final quarter of the previous year, driven by government’s stimulus initiatives introduced since September. However, economists warned that some of this growth might be short-lived due to weakening consumer demand and a faltering property market, compounded by potential tariff increases from the Trump administration.
While PBOC Governor Pan Gongsheng hinted at a possible reserve requirement ratio cut by late 2024, aimed at increasing liquidity in the banking sector, such measures remain off the table for now. Despite a surprise rate cut from the central bank in July and another smaller cut in October, rates have held steady through the year-end.
