China's central bank maintained its benchmark lending rates at 3% for the one-year Loan Prime Rate and 3.5% for the five-year LPR, marking the seventh consecutive month of inaction despite persistent economic weakness. The decision underscores a cautious approach to monetary policy.
- PBOC maintains one-year LPR at 3.0% and five-year LPR at 3.5% for seventh consecutive month
- Industrial output growth slowed to 4.2% YoY in November; retail sales up 3.1%
- HSI fell 1.3%, SSEC dropped 0.8% on rate announcement
- USDCNY rose to 7.23, signaling yuan depreciation pressure
- AUDUSD declined slightly amid risk-off sentiment
- Monetary easing remains on hold; focus shifts to fiscal and structural measures
The People's Bank of China (PBOC) has kept its key lending rates unchanged for the seventh straight month, leaving the one-year Loan Prime Rate (LPR) at 3.0% and the five-year LPR at 3.5%. This marks a deliberate pause in monetary easing despite recent data showing a continued economic slowdown, including soft factory output, declining property sales, and weakening consumer confidence. The decision reflects a strategic balancing act by the PBOC, which faces mounting pressure to stimulate growth while managing inflationary risks and financial stability. With industrial production growth slowing to 4.2% year-on-year in November and retail sales rising by just 3.1%, the central bank appears prioritizing policy credibility and avoiding over-reliance on rate cuts. The unchanged rates also signal limited room for additional stimulus in a landscape of high corporate leverage and a struggling real estate sector. Financial markets reacted with caution. The Hang Seng Index (HSI) declined 1.3% on the news, while the Shanghai Composite Index (SSEC) dropped 0.8%. Currency markets also showed stress, with the USDCNY exchange rate climbing to 7.23, reflecting increased pressure on the yuan. The AUDUSD pair dipped slightly as risk sentiment cooled, highlighting broader regional market sensitivity to China's economic trajectory. Investors now look to fiscal policy and structural reforms as the primary drivers of growth, with increased scrutiny on state-backed infrastructure spending and targeted credit support for small and medium enterprises. The PBOC’s stance suggests it will wait for clearer signs of recovery before adjusting rates, even as property developers continue to default and household savings rates remain elevated.