China Holds Lending Rates Steady Amid Economic Uncertainty

China’s Central Bank Holds Steady on Lending Rates

As Beijing evaluates the impact of its recent stimulus measures, China’s central bank has decided to maintain its major benchmark lending rates. The People’s Bank of China announced that it will keep the 1-year loan prime rate at 3.1% and the 5-year LPR at 3.6%.

Assessing the Stimulus Effect

Market experts had anticipated this move, citing the need for Chinese leaders to assess the effects of recent measures aimed at boosting the economy. According to Bruce Pang, chief economist and head of research for Greater China at JLL, there is “no immediate need to adjust the LPR this month.” Pang notes that record-low net interest margins at Chinese commercial banks have limited their ability to support lower lending rates.

Economic Data Paints a Mixed Picture

The rate decision comes on the heels of China’s October economic data, which revealed a lackluster economy despite recent stimulus announcements. Industrial production and fixed asset investment growth were slower than expected, while real estate investment declined. However, retail sales beat expectations, indicating that stimulus efforts are starting to take hold in certain sectors.

Stimulus Efforts Intensify

Since late September, Chinese authorities have accelerated stimulus announcements to spur economic growth, which has been hindered by a prolonged property crisis and weak consumer and business sentiment. The Ministry of Finance recently unveiled a 5-year fiscal package worth 10 trillion yuan ($1.4 trillion) to address local government debt problems, signaling potential for further economic support in 2025.

Outlook for China’s Economy

Morgan Stanley predicts China’s growth will slow to around 4% in each of the next two years, citing a deflationary environment and rising trade tensions as risks. Goldman Sachs estimates that China’s GDP growth could decelerate to 4.5% in 2025, from 4.9% this year. However, Goldman maintains an “overweight” stance on China equities, forecasting a 13% upside to the benchmark CSI 300 index next year.

Uncertainty Surrounds Export-Heavy Economy

The election victory of Donald Trump, which may lead to higher tariffs on Chinese exports, has added to the uncertainty surrounding China’s export-heavy economy. As the country navigates these challenges, its central bank’s decision to hold steady on lending rates will likely be closely watched by market observers.

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