China Expected to Maintain Benchmark Lending Rates

SHANGHAI (Reuters) – A Reuters poll indicates that China is likely to keep its benchmark lending rates unchanged on Wednesday. A recent rate cut has impacted banks' profitability, and the yuan faces renewed pressure following Donald Trump’s return to the White House.

Since late September, Beijing has implemented various stimulus measures including monetary easing, fiscal policies, and support for the property market to revive the economy from a deflationary slump and meet growth targets.

In October, Chinese banks substantially reduced lending benchmarks to stimulate economic activity. However, with Trump's return to the presidency, analysts suggest that Chinese policymakers might opt for caution, postponing significant monetary actions until he assumes office in January for clarity on his policies.

The loan prime rate (LPR), which is typically offered to banks' best clients, is calculated monthly based on submissions from 20 designated commercial banks to the People’s Bank of China (PBOC). A recent Reuters survey of 28 market analysts found unanimous expectations that both one-year and five-year LPRs will remain stable.

A trader from a Chinese bank noted, “LPRs were lowered so sharply in October, so it is unlikely to have another cut this month. We may first wait and see the impact of the policy in the short term.”

During his campaign to support American manufacturing, Trump proposed tariffs exceeding 60% on Chinese goods. These potential tariffs, along with tax reductions, are anticipated to be inflationary and could maintain high U.S. interest rates, negatively impacting the currencies of trading partners like China.

Since the U.S. elections on November 5, the yuan has depreciated around 1.8% against the dollar. Roman Ziruk, a senior market analyst at Ebury, commented, “Aside from the tariff threat, the recent upward repricing of U.S. rates is causing headaches in Beijing, limiting monetary easing options during an economic recovery.” He added that changes to the medium-term lending facility (MLF) or LPR rates are likely not imminent.