China has maintained its benchmark lending rates for the ninth consecutive month, as expectations for substantial monetary easing diminish due to a weakening yuan and widening yield differentials with the United States. 

Recent data has indicated that China’s economy is losing momentum following the initial post-Covid rebound, leading to hopes of further easing measures. 

However, concerns over capital outflows and the impact on the yuan have led some analysts to anticipate that the People’s Bank of China (PBOC) may lower the amount of cash banks must hold in reserve as its next policy move. 

In line with market predictions, the one-year loan prime rate (LPR) remained at 3.65% and the five-year LPR at 4.30%.

Goldman Sachs economists have stated that they do not expect significant stimulus measures to be implemented, as China’s 5% GDP growth target remains achievable, and issues such as property risks and youth unemployment require a targeted approach. 

They suggest that symbolic measures such as a reserve requirement ratio (RRR) cut are more likely than policy rate cuts this year due to the wide interest rate differential between the US and China and the depreciation pressure on the yuan. 

China’s yuan recently weakened to five-month lows against the US dollar, while the yield gap between Chinese and US government bonds is at its widest level in two months.

The PBOC’s decision to keep the LPR unchanged follows the rollover of maturing medium-term lending facility (MLF) loans last week. 

Capital Economics economists believe that the central bank’s objective is to ensure that credit growth does not slow significantly as the boost from the reopening of the economy fades. 

They suggest that policy rate cuts may be avoided and alternative tools, such as RRR cuts, deposit rate window guidance, and liquidity injections, could be employed to lower funding costs. The LPR, which is used to determine interest rates for most loans in China, is set by designated commercial banks on a monthly basis.