China holds loan prime rates steady as growth slows and yuan firms

China’s central bank kept benchmark rates unchanged for a ninth month, balancing growth support with yuan stability.Summary:PBOC keeps 1-year LPR at 3.0%, 5-year at 3.5%Ninth consecutive month of unchanged benchmark ratesGrowth slowed to 4.5% y/y in Q4, weakest since post-Covid reopeningYuan appreciation adds currency-stability considerationsPolicymakers balancing stimulus needs with FX and export risksChina’s central bank has left its benchmark lending rates unchanged for a ninth straight month, underscoring the delicate balance policymakers are attempting to strike between supporting a slowing economy and maintaining currency stability.The People’s Bank of China held its one-year loan prime rate (LPR) at 3.0% and the five-year LPR at 3.5%. The one-year rate serves as the reference for most new and outstanding corporate and household loans, while the five-year rate guides mortgage pricing.The decision comes against a backdrop of moderating economic momentum. China’s economy expanded 4.5% year-on-year in the fourth quarter, marking its slowest pace since authorities dismantled stringent Covid-era restrictions in late 2022. Domestic demand remains subdued as households rein in spending amid a prolonged property downturn, a soft labour market and uncertain income prospects.Beijing has attempted to stimulate activity through targeted measures, including efforts to promote services consumption in areas such as elderly care, tourism and leisure. Officials hope these segments can offset persistently weak demand for goods, particularly as the real estate sector continues to drag on broader sentiment.At the same time, currency dynamics have complicated the policy outlook. The yuan has strengthened in recent months, aided in part by a softer U.S. dollar. The central bank manages the currency within a daily trading band of 2% on either side of a reference midpoint (today’s is here), and officials have recently set that midpoint stronger, moving it below the symbolic 7-per-dollar level for the first time in nearly three years.While a firmer yuan helps contain imported inflation and capital outflow risks, it also poses challenges for exporters already grappling with U.S. tariffs and intense global competition. A stronger currency could erode price competitiveness at a sensitive juncture for China’s export engine.The steady hand on interest rates suggests policymakers are prioritising financial and currency stability over aggressive monetary easing, even as growth pressures linger.
This article was written by Eamonn Sheridan at investinglive.com.

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