China’s central bank kept its key lending rates unchanged on Thursday as policymakers balanced the need to support economic growth while maintaining currency stability amid rising trade tensions.
The People’s Bank of China (PBOC) left the one-year loan prime rate (LPR) at 3.1% and the five-year LPR at 3.6%, unchanged since an October cut of 25 basis points.
The decision followed the US Federal Reserve’s move to hold benchmark interest rates steady, though Fed officials signalled the possibility of half a percentage point in cuts through 2025.
The Federal Reserve maintained its benchmark interest rate in the 4.25%-4.50% range, in line with expectations. US stocks climbed on Wednesday after the decision.
The LPRs, which serve as benchmarks for corporate and household loans, are set monthly based on rates submitted by designated commercial lenders.
While the one-year LPR influences business and personal loans, the five-year rate is a key reference for mortgage rates.
China’s trade concerns
The PBOC has also maintained its seven-day reverse repo rate, the country’s main policy rate, at 1.5% since October, as it seeks to prevent excessive yuan depreciation.
The Chinese offshore yuan has recovered some ground since hitting a 16-month low in January but remains nearly 1.8% weaker since US President Donald Trump’s election victory in November.
Following the rate decision, the yuan remained steady at 7.2280 per US dollar, while the yield on China’s 10-year government bonds fell by more than two basis points to 1.932%.
Chinese authorities have pledged to increase monetary easing this year, including potential rate cuts “at an appropriate time,” to support an ambitious economic growth target of around 5%.
However, analysts suggest that any major policy measures from the PBOC will likely depend on Trump’s trade policy actions.
Impact of Trump tariffs on China’s economy
President Trump recently imposed new 20% tariffs on Chinese imports and has threatened further levies in early April.
The move adds pressure to China’s export sector, which has been one of the few bright spots in an otherwise slowing economy.
Beijing has responded with countermeasures, imposing tariffs of up to 15% on US agricultural exports and expanding restrictions on American businesses.
In February, China’s Finance Ministry also announced 15% tariffs on US coal and liquefied natural gas imports, along with 10% duties on crude oil, agricultural equipment, and certain vehicles.
China’s export growth slowed more than expected at the start of the year, while imports also declined, reflecting weak domestic demand and the ongoing strain of US trade restrictions.
PBOC Governor Pan Gongsheng has emphasized the importance of keeping the yuan stable at a “reasonable and balanced level,” a stance that could be seen as a goodwill gesture ahead of potential trade negotiations with Washington.
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