December 23, 2024 – China has decided to keep its benchmark lending rates unchanged, aligning with market expectations. The move reflects ongoing challenges in balancing deflationary pressures and economic stimulus with the constraints of a weakening yuan and narrowing interest margins.
Key Figures:
- One-Year Loan Prime Rate (LPR): 3.10%
- Five-Year LPR: 3.60%
A Reuters poll of 27 market participants earlier this week confirmed unanimous expectations for rates to remain steady.
Why It Matters:
While China’s economy continues to grapple with weak credit demand and persistent deflationary pressure, the depreciating yuan and rapidly falling bond yields limit the People’s Bank of China’s (PBOC) ability to implement further monetary easing. Policymakers remain cautious, urging financial institutions to manage interest rate risks amid volatile bond markets.
Policy Context:
Earlier this month, China’s Politburo signaled a shift toward an “appropriately loose” monetary policy to support economic growth. This marks a potential departure from the more cautious approach that has been in place since 2011.
Expert Insight:
Tommy Xie, Head of Greater China Research at OCBC Bank, stated:
“The monetary policy stance will shift to being moderately loose, marking a significant departure from the prudent monetary policy regime in place since 2011.”
He further predicted:
“We anticipate the PBOC will lower the one-year LPR by 40 basis points in 2025 and reduce the reserve requirement ratio (RRR) by an additional 100 basis points, providing substantial liquidity support to the economy.”
As China navigates these economic challenges, the central bank appears to be laying the groundwork for a more accommodative policy stance in the coming year.
