China Leaves Key Lending Rate Unchanged as Yuan Weakens

By Ambar Warrick 

Investing.com– The People’s Bank of China kept two key lending rates unchanged on Thursday for a second consecutive month, as it grapples with slowing economic growth and a severely weakened yuan. 

The central bank maintained its one-year (LPR), which commercial banks charge their most creditworthy customers, at 3.65%, while the five-year LPR, which factors into mortgage rates, remained at 4.3%, as expected by markets.

The move marks the second month in a row that the PBOC held its key rates, after an unexpected cut in August. Earlier this week, the central bank also maintained its medium-term lending facility rate. 

The hit a record low after the PBOC’s decision on Thursday. The was trading close to levels last seen during the 2008 financial crisis, with both units trading well above 7.2 to the dollar. The Chinese currency is also struggling amid increased headwinds from a stronger dollar, which weighed on most Asian currencies this week. 

The PBoC has so far maintained an accommodative stance, as it moves to support economic growth that was battered by COVID-related lockdowns this year. But weakness in the yuan has given the central bank limited room to loosen policy, amid rising interest rates across the globe. 

Uncertainty over the Chinese economy grew this week after President Xi Jinping said the country has no plans to scale back its strict zero-COVID policy. The policy is at the heart of China’s economic woes this year, given that it caused disruptions in several Chinese economic hubs.

A recent resurgence in infections spurred renewed lockdown measures in Shanghai, the country’s financial capital. 

Markets are also awaiting the release of third-quarter and for September, the release of which was indefinitely postponed by the government. The GDP is of particular importance to markets waiting to see whether the world’s second-largest economy was able to stay in expansionary territory through the July-September quarter. 

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