The People’s Bank of China (PBOC) building in Beijing, China, on Thursday, Dec. 15, 2022.
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China expectedly kept its loan prime rates unchanged Monday, as strong macro data allows its central bank room to focus on stabilizing the yuan amid trade tensions with the U.S.
The People’s Bank of China’s decision to keep the 1-year loan prime rate at 3.1% and the 5-year LPR at 3.6% comes as China reported better-than-expected economic data this month.
The country’s first-quarter GDP rose 5.4% year on year, while retail sales and industrial output numbers for March also beat expectations of economists polled by Reuters.
The 1-year LPR influences corporate and most household loans in China, while the 5-year LPR serves as a benchmark for mortgage rates. The PBOC has kept the LPRs steady since October last year.
The PBOC didn’t cut the LPR as China’s macro data has not shown signs of weakening yet, said Zhiwei Zhang, president and chief economist at Chinese hedge fund management firm Pinpoint Asset Management. “They will cut interest rate when hard data softens.”
China’s economic data for the month of April — which will reflect the impact of U.S. President Donald Trump’s tariffs — will start coming in from April 30, with official purchasing managers index figures.
Trade data will be released on May 9, and inflation numbers on May 10, according to LSEG.
Following the announcement, the Chinese onshore yuan appreciated 0.20% to 7.2848 against the dollar, while the offshore yuan strengthened 0.22% to 7.2846 against the greenback.
Mainland China’s CSI 300 rose 0.36%.
The PBOC decision was in line with a Reuters poll of economists, with 87% expecting the bank to keep rates steady.
Dutch bank ING had also forecast in a note last week that the PBOC would likely hold rates, with analysts Lynn Song and Min Joo Kang pointing out that the LPR was unlikely to shift without the 7-day repo rate being cut first.
The 7-day repo rate currently stands at 1.5%, and was last lowered by 20 basis points in September.
However, ING also said “low inflation and strong external headwinds amid escalating tariff threats provide a strong case for easing. But currency stabilization considerations may prompt the People’s Bank of China to wait until the U.S. Federal Reserve cuts borrowing costs.”
Ryota Abe, economist at Sumitomo Mitsui Banking Corporation, told CNBC that PBOC is unlikely “to use currency to counter the economic difficulties because it may potentially lead to massive capital outflow.”
The U.S. has imposed tariffs of up to 245% on Chinese imports, while China has slapped 125% duties on U.S. imports.
While GDP growth figures were encouraging, consumer prices in the world’s second-largest economy remained in deflationary territory, with the CPI reading in March showing that prices fell 0.1% year on year.
Producer prices fell 2.5% in March, marking the 29th straight month in deflationary territory and seeing the largest contraction since November 2024.