China Maintains Key Lending Rates to Strengthen Yuan Amidst Trump Tariffs: What This Means for the Economy

The People’s Bank of China (PBOC) recently decided to keep its loan prime rates steady at 3.1% for the 1-year rate and 3.6% for the 5-year rate. This move aims to stabilize the yuan amidst ongoing trade tensions with the U.S.

In March, China reported some positive economic data. The country’s GDP grew by 5.4% year-on-year, which provided room for the PBOC to maintain the current interest rates. Retail sales and industrial output also exceeded forecasts, highlighting a boost in economic activity.

The 1-year loan prime rate influences most loans for households and businesses, while the 5-year rate is crucial for mortgages. Since October 2022, the PBOC has held these rates steady. Following the announcement, the onshore yuan remained stable at about 7.2995 against the dollar, while the offshore yuan slightly appreciated.

A recent poll showed that 87% of economists expected this decision from the PBOC. Dutch bank ING stated that the rates are likely to stay unchanged until the U.S. Federal Reserve lowers borrowing costs. Ryota Abe, an economist at Sumitomo Mitsui Banking Corporation, suggested the central bank is cautious about using currency adjustments to tackle economic challenges due to the risk of capital flight.

Despite the positive GDP numbers, China is facing deflation. As of March, consumer prices dipped by 0.1% year-on-year, and producer prices fell by 2.5%, marking the 29th consecutive month in deflation. This is the steepest decline in producer prices since November 2024.

As trade tensions continue, it’s clear that the PBOC is navigating a delicate balance between fostering growth and stabilizing the currency. The upcoming economic strategies will be critical for sustaining momentum in this uncertain climate.

For more detailed economic insights, you can visit the People’s Bank of China.

Source link

Asia Economy,US Dollar/Chinese Renminbi FX Spot Rate,business news