China held its benchmark lending rates steady on Monday, defying expectations for a cut but reflecting limits on monetary policy easing due to downward pressure on the yuan currency.
The decision maintains the one-year loan prime rate (LPR) at 3.65% and the five-year LPR at 4.3% – rates that affect longer-term corporate loans. It came after the People’s Bank of China (PBOC) also kept a separate key medium-term lending rate unchanged last week.
Despite uneven economic data and deflationary risks, the PBOC has avoided cuts – a move that could spur further yuan depreciation based on currency flow dynamics, analysts say.
“A cut at this stage could trigger additional depreciation pressure, something the PBOC wants to avoid,” said Julian Evans-Pritchard of Capital Economics.
With quantitative easing options still available, the PBOC appears reluctant to use interest rate cuts that could threaten yuan stability. China may utilize more targeted lending facilities for now to support struggling sectors.