Post by : Saif Rahman

China has opted to maintain its primary benchmark lending rates unchanged for the seventh consecutive month, signaling a commitment to achieving growth objectives while exercising caution regarding pervasive economic challenges. This decision, made public on Monday, meets market expectations and underscores Beijing's methodical management of the economy during a challenging recovery phase.

The one-year loan prime rate, which affects corporate lending and short-term loans, remains at 3.00%. Simultaneously, the five-year loan prime rate, closely tied to mortgage expenses, stays steady at 3.50%. These rates determine the interest banks charge to businesses and households nationwide.

By keeping rates stable, Chinese officials seem to indicate that they are confident the economy will meet the government’s proposed annual growth target, estimated to be around 5%. The decision also implies there is no pressing need for new monetary support at the moment, despite ongoing difficulties in some sectors.

China’s central bank adheres to what it describes as a “cross-cyclical” policy, intending to smooth over economic fluctuations without hastily imposing sharp changes in policy. Another reason for refraining from immediate rate cuts is the strain on banks' profit margins, which have already hit low levels; excessive reductions could jeopardize the financial sector if not handled cautiously.

Recent economic indicators present a mixed view. In November, factory output growth slowed, and retail sales faced a downturn. These trends suggest declining demand from both consumers and businesses. The ongoing crisis in the property sector continues to adversely affect confidence, causing consumers to hold back on spending and borrowing.

New bank lending in November grew less than anticipated due primarily to a significant decline in household borrowing. Many families are reluctant to acquire new loans, particularly for homes, as uncertainties regarding employment, incomes, and property values linger. This reluctance diminishes the potential impact of stable interest rates on broader economic performance.

Earlier this month, Chinese officials gathered at the annual Central Economic Work Conference, where they pledged to uphold an active fiscal policy for the upcoming year. This approach suggests the government intends to utilize spending strategies to bolster consumption and investment, keeping growth on a stable trajectory. Officials also emphasized the importance of flexible usage of policy tools, including interest rates and bank reserve requirements, if there is a need for intervention.

Several economists speculate that monetary easing may materialize in early 2026. Analysts from major global banks foresee potential minor adjustments to the policy rate along with a decrease in banks’ reserve obligations to facilitate government bond issuance and boost economic activity. Nevertheless, these actions are currently viewed as less urgent, considering the prevailing growth patterns.

For now, China’s decision to keep lending rates unchanged underscores a wait-and-see approach. Authorities are attempting to balance the necessity of stimulating growth against the risks of adopting overly proactive measures. Although the economy is not operating at its full potential, policymakers appear assured that existing strategies suffice for now, while remaining open to action should the situation deteriorate.

#Global News #Global Updates #World News