China Maintains Benchmark Lending Rates Amid Yuan Weakness

SHANGHAI (Reuters) – China left benchmark lending rates unchanged for the third consecutive month, as expected. A weakening yuan has limited Beijing’s ability to ease monetary policy.

At the monthly fixing on Monday:
– The one-year loan prime rate (LPR) remains at 3.1%.
– The five-year LPR is unchanged at 3.6%.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences mortgage pricing.

In October 2024, Chinese lenders had previously slashed lending benchmarks significantly to revive economic activity.

Why It Matters

China’s economy met the government’s goal of 5% growth last year, reducing the urgency for imminent monetary stimulus amid renewed depreciation of the yuan. Banks’ narrowing interest rate margin also limits the scope for monetary easing.

By The Numbers

• One-year LPR: 3.1%
• Five-year LPR: 3.6%

Context

China has taken measures including verbal warnings, adjustments to capital flows, and issuing offshore yuan bills to stabilize the declining yuan. Investors are less optimistic about near-term rate cuts, reflecting expectations that authorities will maintain policy stability while the yuan weakens.

The Politburo announced last month that China will adopt an ‘appropriately loose’ monetary policy in 2025, marking the first easing of its stance in 14 years, alongside a more proactive fiscal policy aimed at spurring economic growth.