China keeps benchmark lending rates unchanged

China kept its benchmark lending rates unchanged at the monthly fixing, in line with expectations.

The one-year loan prime rate was maintained at 3.45%, reflecting limited scope for monetary easing in the current economic environment.

Last week, the People’s Bank of China surprised markets by keeping its medium-term lending facility rate steady, indicating a cautious approach to monetary policy adjustments.

Despite recent data highlighting the uneven nature of China’s economic recovery and deflationary pressures affecting real borrowing costs, the central bank has refrained from rate cuts.

Concerns exist that a rate cut at this stage could contribute to additional depreciation pressure on the yuan.

Downward pressure on China’s yuan has reemerged in the new year, influenced by a strong US dollar, resilience in the US economy, and caution regarding the Federal Reserve’s potential rate cuts.

Analysts anticipate that the PBOC will resume rate cuts once the yuan shows signs of stabilization.

The forecast is for a 20 basis point reduction in rates by the end of the second quarter, following two rate cuts totaling 20 basis points in the one-year Loan Prime Rate last year.

Economists expect the central bank to increase liquidity injections before the upcoming Lunar New Year holidays.

Increased liquidity is anticipated to address the rise in cash demand from both corporates and households during this period.