China's central bank, the People's Bank of China (PBOC), announced on Monday that it would keep its benchmark lending rates unchanged. This decision comes as the nation grapples with a weakening yuan and anticipates policy directions from the incoming Donald Trump administration in the United States. The PBOC held the 1-year loan prime rate (LPR) at 3.1% and the 5-year LPR at 3.6%, as per their official statement.
The announcement arrives just days before Donald Trump's inauguration as the next U.S. president, scheduled for Monday. The central bank's move is seen as a response to the ongoing challenges posed by a depreciating yuan, which has lost over 3% since Trump's election victory in early November. The tightly-controlled onshore yuan has also slipped to near a 16-month low.
Despite maintaining lending rates, China's economic activity showed unexpected acceleration in the final quarter of the previous year. This growth was largely attributed to Beijing's stimulus measures introduced since last September, which helped the economy achieve its annual growth target. However, economists have raised concerns that some of the underlying growth drivers may be temporary.
The 1-year LPR influences rates on corporate and most household loans, while the 5-year LPR serves as a reference for mortgage loans. This decision to maintain rates follows previous months of stability, as the PBOC also kept rates unchanged in November and December. Earlier in the year, in July, the PBOC surprised markets by reducing major short- and long-term lending rates, followed by an anticipated 25-basis-point cut in October.
PBOC Governor Pan Gongsheng had signaled the potential for a cut in the reserve requirement ratio back in September, yet such a cut has not materialized. The central bank has shifted to a "moderately loose" policy stance but remains cautious amid weak consumer demand, a deepening property market slump, and the threat of looming tariff hikes from the incoming U.S. administration.