The offshore yuan stabilized around 7.12 per dollar on Monday, interrupting a trend of two consecutive days of losses as investors closely analyzed the People’s Bank of China’s (PBOC) decision regarding key lending rates. For the fourth consecutive month, the central bank maintained its benchmark loan prime rates at historically low levels, a move that aligns with market expectations. This decision comes in the wake of the US Federal Reserve’s recent action to reduce rates by 25 basis points.
The one-year loan prime rate (LPR), which influences most corporate and household borrowing, remained unchanged at 3.0%. Similarly, the five-year LPR, which serves as a crucial benchmark for mortgages, also stayed steady at 3.5%. Both of these rates were last adjusted downward by 10 basis points in May.
This decision not to alter rates reflects a cautious stance, particularly in light of weaker economic activity indicators. Industrial output for August grew at its slowest rate in over a year, while retail sales reached their lowest level in nine months. Additionally, exports reported their least robust growth since February. Credit demand continues to lag behind expectations, notably hindered by ongoing stress within the property sector and restrictions aimed at curbing overcapacity.
Despite the current economic challenges, market analysts anticipate some level of policy easing later this year. This expectation is fueled by the authorities’ intent to stabilize growth around the government’s target of 5%. Investors and market participants will be keeping a close watch on any forthcoming measures as the government navigates these economic uncertainties.
