Prime Highlights:
The People’s Bank of China (PBOC) maintains the 1-year loan prime rate (LPR) at 3.1% and the 5-year LPR at 3.6%.
The decision comes as the PBOC seeks to stabilize the yuan amidst external challenges, including the incoming U.S. administration.
The central bank introduced a new 500-billion-yuan re-loan program to support small and medium-sized tech enterprises.
Key Background:
The People’s Bank of China (PBOC) announced on Monday that it would keep its benchmark lending rates unchanged, maintaining the 1-year Loan Prime Rate (LPR) at 3.1% and the 5-year LPR at 3.6%. This decision comes amid efforts to stabilize the Chinese yuan, which has been weakening due to external pressures, including the uncertainty surrounding U.S. trade policies under the incoming administration of President-elect Donald Trump.
The 1-year LPR is pivotal for corporate and household loans, while the 5-year LPR serves as a reference for mortgage loans. The move signals China’s prioritization of exchange rate stability over immediate interest rate cuts, as Beijing aims to avoid excessive volatility in the currency markets. The PBOC has been cautious in adjusting monetary policy recently, following a surprise rate reduction in July and a 25-basis-point cut in October.
In addition to the rate decision, the PBOC introduced a 500-billion-yuan re-loan program to support technological innovation and small tech enterprises. The program offers loans through 21 commercial banks at a rate of 1.75%, aiming to foster economic transformation and assist struggling sectors.
Despite positive growth figures in the last quarter of 2024, concerns remain about China’s economic outlook, with weak consumer demand and a deepening property market slump. The PBOC is also waiting for clarity on U.S. trade policies, with some analysts predicting further rate cuts if tariffs on China are raised. Markets are closely monitoring potential policy shifts from both China and the U.S. as global economic conditions evolve.
