BEIJING, CHINA – JANUARY 06: The People’s Bank of China (PBOC) building is seen on January 6, 2025 in Beijing, China.
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China kept its key lending rates unchanged on Thursday, as Beijing juggles propping up growth and stabilizing its currency amid mounting trade frictions.
The People’s Bank of China held the 1-year loan prime rate at 3.1% and the 5-year LPR at 3.6%, where they have been since a quarter-percentage-point cut in October.
The rate decision follows the U.S. Federal Reserve’s move to hold benchmark interest rates. Fed officials, however, indicated likely half a percentage point of rate cuts through 2025.
China’s LPRs — normally charged to banks’ best clients — are calculated monthly based on designated commercial lenders’ proposed rates submitted to the PBOC. The 1-year LPR influences corporate and most household loans in China, while the 5-year LPR serves as a benchmark for mortgage rates.
The PBOC has kept its 7-day rate, the country’s main policy rate, steady at 1.5% since a cut in October, as the central bank defends the yuan that faces downward pressure amid threats of higher tariffs.
Chinese offshore yuan has regained some ground in recent weeks after hitting a 16-month low in January, while having weakened nearly 1.8% since U.S. President Donald Trump’s election win in November.
Following the rate announcement, the yuan was little changed trading at 7.2280 against the greenback while yield on the 10-year government bonds fell more than 2 basis points to 1.932%.
China’s top officials have pledged to ramp up monetary easing measures this year, including interest rate cuts “at appropriate time,” as Beijing has set an ambitious growth target of “around 5%.”
While the cuts are yet to materialize, analysts anticipate any policy measures by the PBOC are likely to hinge on Trump’s trade policy moves.
Earlier this month, PBOC Governor Pan Gongsheng reiterated that the bank wanted to maintain currency stability at “a reasonable and balanced level.” Preventing the yuan from weakening too quickly could be seen as a sign of goodwill in the lead up to any negotiation with Trump on a trade deal to put a ceiling on tariffs, economists said.
Trump has slapped new tariffs of 20% on Chinese imports and threatened more as early April. The fresh tariffs are seen straining China’s exports, a lone bright spot in the faltering economy.
China’s exports growth slowed more than expected at the start of the year while imports plunged, as lackluster domestic demand and U.S. tariffs challenge Beijing’s bid to bolster sluggish growth.
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