BEIJING, CHINA – DECEMBER 02: The People’s Bank of China (PBOC) building is seen on December 2, 2024 in Beijing, China.
China’s central bank, the People’s Bank of China (PBOC), kept its main benchmark lending rates unchanged on Friday, as it faces the challenge of bolstering economic growth while backstopping a weakening yuan. The PBOC said it would steady the one-year loan prime rate at 3.1%, with the five-year LPR at 3.6%. The move was expected according to a Reuters poll of 27 economists.
The rate decision came on the back of a widely-expected 25-basis-points rate cut by the U.S. Federal Reserve on Wednesday. The Fed also indicated it will only reduce interest rates twice in 2025, fewer than the four cuts in its September meeting’s projection.
Analysts said the Fed’s revised outlook on future rate cuts is unlikely to have a huge influence on the trajectory of policy easing by China’s central bank, although it could put pressure on the Chinese yuan. The PBOC is not stepping in to defend the yuan, according to Farzin Azarm, managing director of equities trading at Mizuho Americas.
Despite a flurry of stimulus measures since late September, latest economic data out of China showed the country is still contending with entrenched deflation, amid tepid consumer demand and a protracted property market slump. Major investment banks and research firms forecast the Chinese yuan would weaken further next year, in anticipation of President-elect Donald Trump following through with his tariff threats.
The PBOC kept the one-year and five-year LPRs unchanged in November, following a widely-anticipated 25bp-cut in October. The central bank had surprised the markets by shaving the major short and long term lending rates in July.
Analysts believe the PBOC should continue cutting rates to alleviate the yuan’s deflationary pressure against other currencies. Meanwhile, the Chinese government possesses greater fiscal flexibility and is likely to rely more on fiscal measures to stimulate growth.
