China's central bank upholds interest at 2.5 percent rate amid economic caution

(MENAFN) China's central bank opted to keep its key one-year interest rate steady at 2.5 percent, aligning with expectations and indicating a cautious stance on monetary easing amidst challenges posed by a depreciating currency. This decision, coupled with the withdrawal of liquidity from the banking system through a bond instrument, underscores the institution's commitment to currency stability amid a fragile economic recovery.

The People's Bank of China's decision to maintain the medium-term lending rate (MLF) signals a deliberate approach to balancing economic stimulus with currency concerns. Despite mounting pressures for more aggressive stimulus measures driven by slowing inflation, shrinking credit, and dwindling exports in March, the bank appears restrained due to challenges posed by the yuan's weakness against the robust US dollar and yield differentials with other major economies.

The MLF rate, serving as a crucial indicator of key interest rates, is closely monitored by markets for insights into potential shifts in monetary policy.

Official data released last Thursday revealed a decline of 0.1 percent in China's consumer price index on an annual basis in March, contrasting with a 0.7 percent increase in February—the first upturn in six months. This data underscores the nuanced economic landscape facing Chinese policymakers, where the imperative to stimulate growth is balanced against concerns over currency stability and inflationary pressures.



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