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For the sixth consecutive month, the People’s Bank of China decided to maintain its benchmark lending rates. The one-year loan prime rate remains at 3.1% and the 5-year loan prime rate remains at 3.6%, in line with market expectations.
The decision indicates caution as China tries to manage strong economic expansion, growing trade tensions with the United States and stabilizing its currency. ⁽¹⁾
Strong Economic Growth Reduces Urgency for Easing
China’s economy expanded by 5.4% in the first quarter, surpassing expectations. March data supported confidence, with retail sales and industrial output exceeding forecasts.
Stronger-than-expected first-quarter economic growth data might have reduced the urgency for immediate monetary easing even as markets wager more stimulus is likely in coming months to keep growth on an even keel amid an intensifying China-US trade war. ⁽²⁾
However, due to concerns about US tariff policy, international investment banks have reduced their growth projections for China. China responded with 125% tariffs on US goods after the US levied tariffs of up to 245% on Chinese imports.
Export data has yet to reflect the full impact of these measures as factories preemptively increased shipments to avoid higher duties. ⁽³⁾
Currency Stabilization and Market Reaction
Amid concerns about a trade war, the PBOC’s decision to keep current interest rates steady helps to stabilize the Chinese yuan. Following the announcement, the offshore yuan appreciated by 0.22% to 7.2846, while the onshore yuan rose by 0.20% to 7.2848 against the US dollar.
Mainland China’s CSI 300 index rose 0.36%. ⁽⁴⁾
Deflationary Pressures and Outlook
Deflationary trends continue despite strong Q1 GDP growth. The CPI declined 0.1% YoY in March, the 29th consecutive month of decline, while the PPI plunged 2.5%, the worst since November 2024. ⁽⁵⁾
Key economic indicators, such as the April PMI (April 30), trade balance (May 9), and inflation data (May 10), may provide additional insights on the effects of the trade war with the United States and determine the PBOC’s future course.
China’s central bank appears to be focusing on finding a balance between growth, currency stability, and challenges with international trade without immediately adjusting interest rates. ⁽⁶⁾
