The People's Bank of China (PBOC) has established the Fintech Committee.
Zhang Peng | Lightrocket | Getty Images
China could quickly cut fees the month after the country's annual parliamentary meeting, economists told CNBC after the central bank chose to steadily maintain it on Thursday.
The People's Bank of China has set a one-year loan prime rate of 3.1% and a five-year LPR of 3.6%. The decision was in line with estimates from Reuters polls.
The benchmark lending rates charged to the bank's best clients are usually calculated monthly based on the rates proposed to the proposed PBOC of a designated commercial bank. One-year LPR affects Chinese corporate loans and most household loans, while five-year LPR serves as a benchmark for mortgage rates.
“Banks' net interest and pressure on exchange rates during slower Federal Reserve rates all lead to a stabilization of China's policy rate.”.
Pang expects a 50 base point cut to be the reserve requirement ratio next month, with a seven-day reverse repo rate (the country's main policy rate) to cut 50 basis points from 40 this year.
The PBOC has been trying to defend the yuan in the face of downward pressure amid the threat of higher tariffs in recent months, complicating its mission and stimulating the economy.
“We're still thinking [the 7-day rate] Lin's song, Chief Economist at ING, has a decent chance as real interest rates remain relatively high.
“Reductions could help drive further investment and consumption,” Song said, adding that the original pressures have recently subsided and that it has insisted on cutting interest rates.
China is expected to announce its full-year growth targets for 2025 at its parliamentary meeting, chaired by Xi Jinping, held from March 4-5.
According to Goldman Sachs, policymakers may not change their official real growth targets to “about 5%” and not “about 5%.”
Wall Street banks hope that policymakers will repeatedly repeat the pre-growth monetary easing pledge at the meeting, pledging to stabilize the yuan in “reasonable scope.”
However, supporting the Yuan brings risks to the economy as the weaker Yuan could help Chinese exports competitively price overseas.
PBOC Governor Pan Gongshen said at a meeting in Saudi Arabia on Sunday that a stable yuan is important to maintain global financial and economic stability. Pan also reiterated Beijing's commitment to adopting aggressive fiscal and adjustable monetary policy this year.
China's offshore yuan has fallen nearly 2.5% against the greenback since winning the election for Donald Trump in November after recovering some of its losses in recent weeks. It strengthened 0.20% on Thursday to trade at 7.2673 in the dollar.
Spurs growth and stable source
The world's second largest economy has struggled to emerge from a long-term property crisis and lukewarm consumer demand.
A PBOC official said late last year that he would cut bank reserve requirements ratios and interest rates at “right time” as policymakers face more trade tensions with the US. However, he said interest rate cuts may not be realized yet.
Since taking office last month, US President Donald Trump has imposed a 10% tariff on all imports from China, in addition to existing tariffs of up to 25%.
However, a team of DBS Bank analysts said in a memo on Thursday that market concerns over trade tensions have been eased following reports that Trump could potentially make a wide-ranging deal with China.
“The growing hopes for comprehensive deals between the US and China could limit the degradation of yuan sentiment in the future, despite the market awaiting more Trump tariffs,” the bank said. .
A constraint on the PBOC mitigation step is the slower pace of the Fed due to reduced PROW rates. US Federal Reserve officials agreed that inflation should be seen further decline before rates are cut, according to minutes of the January meeting released Wednesday.
Unlike the Fed focusing on benchmark federal funding rates; PBOCs use fee combinations to manage monetary policy. The governor has shown that he hopes that the seven-day reverse reporate will serve as the main policy rate.
China has stabilized seven-day interest rates since cuts in September when Beijing announced a broader stimulus package aimed at driving growth.
