China Holds Benchmark Rate Steady for Third Month Amid Trump's Inauguration

China has kept its benchmark interest rate unchanged for the third consecutive month. This move is interpreted as a decision to observe the situation following the inauguration of U.S. President-elect Donald Trump before deciding on the scale of liquidity expansion.

The People's Bank of China announced on the 20th that it would maintain the five-year loan prime rate (LPR), which serves as the benchmark for mortgage loans, at 3.6% per annum, and the one-year LPR, which is the benchmark for general loans, at 3.1% per annum. The LPR is calculated by aggregating the rates of 20 major commercial banks each month.

The People's Bank of China lowered the one-year and five-year LPR by 0.25 percentage points each compared to the previous month last October. It has since maintained a steady stance.

Although there is a call for a rate cut to stimulate domestic demand, it is analyzed that the rate was held steady due to concerns about the weakening yuan amid the recent strengthening of the U.S. dollar.

However, since Chinese authorities decided last December to shift from the 'prudent monetary policy' maintained since 2011 to a 'moderately accommodative monetary policy,' many expect the rate cut trend to continue this year. There is speculation that a decision to lower the reserve requirement ratio to supply liquidity could be made ahead of the Chinese New Year, the country's biggest holiday, at the end of this month.

The People's Daily introduced a statement by Pangongsheng, the governor of the People's Bank of China, in an economic outlook article on the 29th of last month, saying, "After implementing the reserve ratio cut policy, the average reserve ratio in the banking industry is approximately 6.6% per annum, which leaves some room compared to the central banks of major international countries."

Beijing Correspondent Kim Eun-jung kej@hankyung.com