China’s central bank has kept its key interest rate unchanged for the tenth month in a row, owing to high liquidity and concerns about the yuan weakening.
On Monday, the People’s Bank of China held the one-year policy loan rate (called the medium-term lending facility) steady at 2.5 per cent. As per a report by Bloomberg, they also pulled 55 billion yuan ($7.6 billion) out of the banking system to prevent excess liquidity.
The central bank's decision has once again highlighted its priority on keeping the currency stable rather than lowering borrowing costs, even as China's economy continues to recover.
However, Beijing's cautious approach could dampen expectations in the market for monetary easing, which have been keeping local bond yields close to their lowest levels in two decades.
Commenting on the weak credit data released last week, Lynn Song, greater China chief economist at ING Bank, said, “a rate cut would be beneficial to support the economy at this juncture.”
“It is likely that the PBOC has held off from rate cuts to date in consideration of the top level policy priority to maintain currency stability at a reasonable and balanced level,” he added.
Officials have held off on cutting rates to keep the yuan strong, even though many are calling for a rate cut. Last week, the onshore yuan dropped to its weakest point since November, due to the large rate gap between the US and China.
According to a recent Bloomberg survey, economists predict a 4.9 per cent growth rate for the country this year. The figure somewhere aligns closely with China's target of around 5 per cent, a goal that experts believe will need additional stimulus measures.
