China holds loan prime rate steady as yuan sinks below key levels

Investing.com– The People’s Bank of China kept its benchmark lending rate unchanged at historical lows on Monday, as it faces increased pressure to shore up economic growth and prevent more weakness in the yuan.

The People’s Bank of China (PBOC) held its one-year (LPR) at 3.65%, while the five-year LPR, which is used to determine mortgage rates, was maintained at 4.30%. Both lending rates were at their lowest level in the past two decades.

The move was as expected by analysts, and marks the ninth straight month that the PBOC has kept rates at historic lows, following a surprise cut in August 2022. 

The LPR is decided by the central bank based on considerations taken from 18 designated commercial banks, and is in turn used as a benchmark by private banks in offering loans.

China had last week also kept its medium-term lending rates steady, which usually signals a similar move with the LPR.

Monday’s decision comes in the wake of several economic readings that showed that a post-COVID rebound in the world’s second-largest economy was running out of steam, amid weak domestic spending, sluggish manufacturing and softening private investment.

This saw the sink below the psychologically important 7 level over the past week, which reflects waning investor confidence in an economic rebound. The yuan was trading at its weakest level in nearly six months against the dollar. 

While weakness in the currency gives the PBOC limited space to support economic growth, analysts expect the central bank to further cut interest rates to support a domestic economic recovery. The PBOC has maintained a steady stream of cash injections into the economy to bolster liquidity and improve growth.  

Chinese consumer spending in particular has remained languid, sparking in the country even with interest rates at record lows. 

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