China has opted to keep its main benchmark lending rates unchanged in its monthly fixing on Friday, surprising market observers who anticipated a reduction following the Federal Reserve's significant rate cut.
The People's Bank of China (PBOC) announced that the one-year loan prime rate (LPR) will remain at 3.35%, while the five-year LPR stays at 3.85%.
Market participants expected a rate cut to provide more room for easing domestic borrowing costs without significantly impacting the yuan's value.
The one-year LPR primarily influences corporate and household loans, while the five-year LPR serves as a benchmark for mortgage rates.
The Fed's recent 50 basis point rate cut was seen as an opportunity for China to enhance its monetary flexibility and alleviate the debt burden on consumers and businesses, aiming to stimulate investment and spending.
In July, China had already surprised markets by reducing major short- and long-term lending rates to support economic growth amid a prolonged property crisis and weakened consumer sentiment.
However, recent economic indicators have raised concerns about the momentum of China's recovery.
In August, retail sales, industrial production, and urban investment all grew at slower-than-expected rates.
Additionally, the urban unemployment rate reached a six-month high, and year-on-year home prices declined at their fastest pace in nine years.
This disappointing data has intensified calls for the government to implement more fiscal and monetary stimulus measures.
Several major banks have adjusted their full-year GDP growth forecasts for China below the government's target of 5%, with Bank of America predicting a growth rate of 4.8% and Citigroup lowering its projection to 4.7%.