China to preserve key lending rates untouched

(MENAFN) China has opted to keep its key lending rates unchanged, aligning with expectations, as the persistent weakness of the yuan limits the scope for additional monetary easing. Policymakers are cautiously observing the effects of prior stimulus measures on credit demand before considering further adjustments.

Recent data indicates that the recovery in the world's second-largest economy remains uneven. While industrial production and retail sales data have exceeded expectations, the economic contraction is deepening, and there are scant signs of imminent recovery in the struggling real estate market.

Despite the evident need for more stimulus to support economic revival, policymakers face a delicate balance, as additional monetary easing could exert downward pressure on the Chinese currency. The People's Bank of China (PBOC) has maintained the key interest rate on one-year loans (LBR) at 3.45 percent and kept the 5-year rate at 4.2 percent, in line with expectations.

The majority of new and existing loans in China are anchored to the one-year loan interest rate, while the five-year rate influences mortgage pricing. Economists surveyed by Reuters had anticipated no alteration in the lending benchmark for one or five years.

Notably, China had reduced its benchmark one-year lending rate in August of the previous year but surprised the markets by keeping the five-year interest rate unchanged. In 2023, the one-year and five-year key interest rates have seen cuts of 20 basis points and 10 basis points, respectively. The decision to maintain stability in lending rates underscores the cautious approach taken by Chinese authorities in navigating economic challenges while carefully managing the impact on the national currency.



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