By Ambar Warrick
Investing.com -- China kept its key loan prime rate unchanged at historical lows on Monday, as the country struggles to maintain a balance between supporting a fledgling economic recovery and keeping its yuan currency robust.
The People’s Bank of China (PBOC) held its one-year loan prime rate (LPR) at 3.65%, while the five-year LPR, which is used to determine mortgage rates, was maintained at 4.30%. Both lending rates were at their lowest in the past two decades.
February now marks the sixth straight month that China has maintained its key lending rates at historically low levels, after an unexpected cut in August 2022.
The LPR is decided by the PBOC based on considerations taken from 18 designated commercial banks, and is in turn used as a benchmark by private banks in offering loans.
Monday’s move was largely in line with a Reuters poll. But it did disappoint a minority of analysts that forecast more interest rate cuts, given that Chinese economic growth slowed drastically in 2022, and has so far shown little improvement despite the lifting of anti-COVID measures earlier this year.
The lifting of anti-COVID measures triggered an immense spike in infections, which disrupted local business activity. Still, Chinese government officials recently declared a “decisive victory” over COVID, citing a relatively small fatality rate in the latest outbreak.
China’s move to hold interest rates was also driven by concerns over the yuan, which was dangerously close to moving past the key 7 to the dollar level. The currency had tumbled to its lowest level since the 2008 financial crisis after the People’s Bank unexpectedly cut the LPR in August.
But the currency is now under renewed pressure from growing fears of a consistently hawkish Federal Reserve. Strong inflation and job market readings are expected to see the Fed keep raising rates in the near-term, widening the gulf between Chinese and U.S. interest rates.