China’s central banks kept their key lending rates the same on Thursday, as they weighed up whether to maintain currency stability and support economic growth in light of rising trade tensions.
Since October, the People’s Bank of China has not reduced the rate of the 5-year and 1-year loans prime rates by 25 basis points.
Fed officials have hinted at the possibility of a half-percentage point cut in interest rates through 2025.
In line with the expectations, The Federal Reserve kept its benchmark rate at 4.25% to 4.50%. US stock prices rose on Wednesday following the announcement.
LPRs are benchmarks that serve for both corporate and consumer loans. They are determined monthly by commercial lenders.
The one-year LPR is used to determine the interest rate on business loans and personal loans. However, for mortgages the key benchmark is the five-year LPR.
China’s Trade Concerns
Since October, the PBOC also kept its reverse repo seven-day rate at 1,5%, which is the main rate of policy for China, in order to avoid excessive yuan appreciation.
Although the Chinese offshore currency has gained some ground after hitting a low of 16 months in January, it remains 1.8% lower since Donald Trump won election in November.
After the decision to raise rates, the Yuan was unchanged at 7.2880 per US Dollar, and the yield of China’s 10-year Government Bonds fell by two basis points, reaching 1.932%.
Chinese authorities pledged that they would increase the monetary ease this year and possibly reduce rates “at the appropriate time” to help support a 5% economic growth goal.
Analysts suggest, however, that major policy decisions from the PBOC may depend upon Trump’s actions on trade.
The impact of Trump’s tariffs on China’s economy
Trump has recently announced new tariffs of 20% on Chinese imports, and has also threatened to impose further duties in April.
This move puts pressure on China’s export industry, one of its few shining spots in a slowing economy.
Beijing responded by imposing up to 15 percent tariffs on US agricultural products and increasing restrictions for American companies.
China’s Finance Ministry announced in February that it would impose 15% duties on US imports of coal, liquefied gas, and agricultural equipment. It also imposed 10% duty on certain vehicles, crude oil and other products.
China’s growth in exports slowed down more than anticipated at the beginning of this year. Imports were also lower, reflecting weaker domestic demand as well as the continued strain from US trade restrictions.
PBOC Governor Pan Gongsheng stressed the need to keep the yuan at a “reasonable, balanced” level. This could be viewed as a gesture of good will ahead of possible trade negotiations with Washington.
As new information becomes available, this post China keeps key lending rates unchanged amid trade uncertainty could be updated.
