The People’s Bank of China (PBoC) has set up a fintech committee.
Zhang Peng | LightRocket | Getty Images
China kept its key lending rates unchanged Thursday, as Beijing prioritizes financial stability over interest rate easing to bolster the economy.
The People’s Bank of China held the 1-year loan prime rate unchanged at 3.1%, and the 5-year LPR at 3.6%. The decision was in line with Reuters poll estimates.
The benchmark lending rates — normally charged to banks’ best clients — are calculated monthly based on designated commercial banks’ proposed rates submitted to the PBOC. The one-year LPR influences corporate loans and most household loans in China, while the five-year LPR serves as a benchmark for mortgage rates.
“Pressure on the banks’ net interest margins and exchange rate amid slower pace of the Federal Reserve’s rate cuts all lead to a stabilization of China’s policy rate,” said Bruce Pang, adjunct associate professor at Chinese University of Hong Kong business school.
While the PBOC officials said late last year, they would cut banks’ reserve requirement ratio and interest rates at an “appropriate time,” the rate cuts are yet to materialize, as policymakers face more trade tensions with the U.S.
“We still think [the 7-day rate] has a decent chance to be cut in Q1,” Lynn Song, chief economist at ING said, as the real interest rate remains relatively high.
“Cutting rates further could help encourage investment and consumption on the margins,” Song said, adding that the yuan’s depreciation pressure have subsided recently, making the case for a rate cut.
Supporting the yuan carries some risks for the economy, as a weaker yuan could help keep Chinese exports competitively priced abroad, while a stronger currency makes imports more expensive at a time when consumer demand has been weak.
However, PBOC Governor Pan Gongsheng said at a conference in Saudi Arabia on Sunday that a stable yuan has been critical to maintaining global financial and economic stability. Pan also reiterated Beijing’s commitment to adopt a proactive fiscal policy and an accommodative monetary policy this year.
Chinese offshore yuan has fallen 2.5% against the greenback since Donald Trump’s election victory in November.
The PBOC has in recent months sought to defend the yuan as it faces downward pressure amid threats of higher tariffs, complicating its task to stimulate a faltering economy.
Since the inauguration last month, U.S. President Donald Trump has imposed a 10% tariff on all imports from China, on top of existing tariffs of up to 25%.
Worries over Trump’s tariff actions and subsequent inflationary pressure have slowed the Fed’s pace with policy rate cuts, according to minutes of its January meeting.
Unlike the Fed’s focus on the benchmark Federal Funds Rate, the PBOC uses a combination of rates to manage monetary policy. The governor has indicated he would like the 7-day reverse repo rate to act as the main policy rate.
China has kept its 7-day rate has steady at 1.5% since a cut in September, when Beijing unveiled a broader stimulus package aimed at spurring growth.