China’s central bank kept its loan prime rates steady on Monday, even as the world’s second largest economy has seen weak economic data and an extended slump in its property sector.
The People’s Bank of China kept its 1-year and 5-year loan prime rates unchanged at 3% and 3.5% respectively, holding them for a seventh straight meeting, in line with a Reuters survey.
The 1-year rate acts as a benchmark for new loans, while the 5-year helps peg mortgage rates.
The PBOC’s decision comes amid downbeat economic data from China in November, including lower-than-expected retail sales and industrial output.
Retail sales rose 1.3% last month from a year earlier, sharply missing Reuters’ median forecast for a 2.8% growth, and slowing from 2.9% rise in the prior month.
Industrial production also missed expectations, climbing 4.8% in November from a year earlier compared with estimates for a 5% jump, and marking its weakest growth since August 2024.
China continues to reel from a protracted slump in its real estate sector. Investment in fixed assets, which includes property, contracted 2.6% over the January through November period compared with a year earlier, sharper than the 2.3% drop estimated by economists.
Prices of new homes also also continued to decline in November, showing persistent weakness in China’s property sector.
New home prices fell 1.2% in tier-1 cities including Beijing, Guangzhou and Shenzhen while resale home prices dropped 5.8% from a year earlier.
When asked about the 7-month pause in monetary policy from the PBOC, Eswar Prasad, professor of trade policy and economics at Cornell University, told CNBC that “some stimulus will help,” but added that at a time when there’s been weakness in the private sector, “monetary policy probably won’t get that much traction.”
“With growth momentum weakening, they’re going to have to turn on the stimulus taps, some monetary stimulus, perhaps, and ideally a little more fiscal stimulus, but that really needs to be packaged with some broader reforms,” Prashad said.
Earlier this month, China’s finance ministry said it planned to issue ultra-long-term special government bonds next year to fund construction of key projects and new infrastructure projects.
Policymakers also vowed to “vigorously support the implementation of special actions to boost consumption,” as country contends with deflationary pressures.
An interim trade deal with the Washington that saw the suspension of prohibitive levels of tariffs on Chinese exports, however, could still help the country realize its “around 5%” economic growth target for 2025, as prospects of increased shipments to the U.S. rise.
Mainland China’s CSI 300 index was up 0.43% on Monday. The onshore yuan was flat at 7.04 against the dollar, while the offshore yuan weakened marginally to trade at 7.03 against the greenback.
— CNBC’s Anniek Bao and Dan Murphy contributed to this report.
Source: CNBC