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The People’s Bank of China (PBOC) maintains its current loan prime rates, keeping the 1-year LPR at 3.1% and the 5-year LPR at 3.6%. This decision, announced on Monday, aligns with the central bank’s strategy to stabilize the yuan amid ongoing trade tensions with the United States.
This move comes in the wake of positive economic indicators from China, with the first-quarter GDP growth reported at 5.4% year on year, providing the PBOC with the flexibility to keep interest rates steady. Additionally, retail sales and industrial output figures for March surpassed economists’ expectations, further supporting the central bank’s decision.
The 1-year LPR is crucial as it affects corporate loans and most household borrowing, while the 5-year LPR serves as a key benchmark for mortgage rates. The PBOC has not altered these rates since October of the previous year.
Following the rate announcement, the onshore yuan remained stable at 7.2995 against the U.S. dollar, whereas the offshore yuan experienced a slight strengthening, trading at 7.2962.
Consensus among economists was reflected in a Reuters poll, where 87% predicted the PBOC would opt to keep rates unchanged. In a recent note from Dutch bank ING, analysts Lynn Song and Min Joo Kang indicated that no adjustments to the LPR were likely until the 7-day repo rate was decreased.
The current 7-day repo rate is at 1.5%, which was last reduced by 20 basis points in September. ING pointed out that while “low inflation and strong external headwinds amid escalating tariff threats” suggest a case for easing, the PBOC may choose to maintain its stance until the U.S. Federal Reserve makes similar cuts to borrowing costs.
The pressures from tariffs, with the U.S. imposing duties as high as 245% on Chinese goods while China retaliated with up to 125% tariffs on U.S. imports, exacerbate the economic climate. Despite the favorable GDP growth figures, China continues to grapple with deflationary conditions as evidenced by a 0.1% decline in consumer prices in March. Additionally, producer prices fell by 2.5%, marking the largest contraction seen in 29 months, signaling persistent deflationary challenges in the economy.
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