China's Central Bank Leaves Key Lending Rates Unchanged in February

Image Credit: Reuters

China kept its benchmark lending rates unchanged in the monthly fixing on Thursday, signaling a cautious approach to monetary stimulus as it prioritizes financial and currency stability.

Why It’s Important

A weakening yuan and shrinking net interest margins for commercial banks are limiting Beijing's ability to ease monetary policy, especially as China faces renewed trade tensions with the U.S. under a new administration led by Donald Trump.

The one-year loan prime rate (LPR) was held at 3.10%, and the five-year LPR remained at 3.60%.

In a Reuters survey of 30 market participants conducted this week, all expected no changes to the rates.

Chinese banks issued 5.13 trillion yuan ($704.35 billion) in new loans in January, a significant increase from December, surpassing analysts' expectations. However, the year-over-year growth in lending hit a record low, pointing to weak credit demand amid ongoing economic uncertainties.

Since Trump's election in November, the yuan has depreciated by 2.4% against the dollar.

Context

Last week, China’s central bank stated it would adjust monetary policy at the right time to support the economy, particularly as external pressures, such as the threat of a worsening trade war with the U.S., grow.

Trump has proposed a 10% tariff on Chinese imports as part of efforts to reduce the U.S. trade deficit, which has prompted retaliatory actions from Beijing.

Between March 2018 and May 2020, a series of U.S.-China tariffs under Trump's first term caused the yuan to fall by more than 12% against the dollar.

Authorities are expected to guide deposit rates lower and focus on replenishing bank capital to ease pressure on banks’ net interest margins, according to Wang Qing, chief macro analyst at Golden Credit Rating.

He added that changes in U.S. Federal Reserve rate cuts or fluctuations in the yuan in 2025 are unlikely to significantly affect the central bank’s monetary policy.

($1 = 7.2833 Chinese yuan renminbi)

 

Paraphrasing text from "Reuters" all rights reserved by the original author