China keeps benchmark lending rates steady as Fed signals fewer cuts ahead

China kept its key benchmark lending rates unchanged on Friday as Beijing faces the challenge of boosting economic growth while supporting a weakening yuan.

The People’s Bank of China said it would stop the first loan rate of one year at 3.1%, with the LPR of five years at 3.6%. The 1-year LPR affects corporate and most household loans, while the 5-year LPR serves as a reference for mortgage rates. The move was expected according to a Reuters poll of 27 economists.

The rate decision came on the back of a widely expected 25 basis point hike cut cut from the US Federal Reserve on wednesday The Fed also indicated that it will only cut interest rates twice in 2025, less than the four cuts in the projection at its September meeting.

Analysts he said The Fed’s revised outlook on future rate cuts is unlikely to have much influence on the trajectory of China’s central bank’s policy easing, although it could put pressure on the Chinese yuan.

Earlier this month, top Chinese officials promised main meetings of the economic agenda to strengthen monetary easing measures, including the implementation of interest rate cuts, to boost the ailing economy.

The PBOC maintained the one-year and five-year LPRs without change in November, after a 25bp-cut widely anticipated in October. The central bank had surprised the markets slashing the main short- and long-term loan rates in July.

Major investment banks and research firms predict The Chinese yuan would weaken further next year, in anticipation of President-elect Donald Trump following through with his tariff threats.

Despite a flurry of stimulus measures since late September, the latest economic data out of China showed the country is still struggling with entrenched deflation, amid tepid consumer demand and a prolonged downturn of the real estate market.

The Fed’s easing cycle going forward will create “some room for the PBOC to follow through,” Yan Wang, head of emerging markets and China strategist at Alpine Macro told CNBC.Street Signs Asia“Thursday, stressing that fiscal easing will play a more critical role in driving the Chinese economy next year.

In a note to CNBC on Friday, Wang said he believed the PBOC would have to continue cutting rates to ease the yuan’s deflationary pressure against other currencies.

“Meanwhile, the Chinese government possesses greater fiscal flexibility and is likely to rely more on fiscal measures to stimulate growth,” he added.

— CNBC’s Dylan Butts contributed to this report.