The People’s Bank of China keeps interest rates unchanged

The People’s Bank of China has opted to maintain the country’s interest rates at 3.45%, in line with market expectations. Similarly, the 5-year lending rates were retained at 4.2%, aligning with the anticipated and priced-in scenario.

However, the People’s Bank of China surprised the markets by keeping the interest rate on medium-term lending facility (MLF) loans unchanged at 2.5% last week. These MLF loans amount to approximately 995 billion yuan, equivalent to 138.84 billion US dollars.

Commerzbank analysts noted that the market had expected the interest rates for one-year and five-year loans to remain at 3.45% and 4.2%, respectively. They also highlighted that China’s foreign direct investment recorded its largest annual decline since 2009 in 2023, falling by 8% in Chinese yuan terms. The decline was attributed to various factors, including China’s economic slowdown, rising global interest rates, increased regulatory and geopolitical risks, and a more stringent Western stance towards China’s technology sector.

China’s economic performance in the fourth quarter of 2023 was below expectations, with the gross domestic product increasing by 5.2%, compared to the anticipated 5.3% in a Reuters poll. The full-year growth for 2023 stood at 5.2%.

To address the debt crisis of certain local governments grappling with high debt levels, the Chinese government has issued instructions aimed at managing municipal debts totaling $13 trillion. As part of these efforts, the State Council has directed local governments and state banks to postpone or halt state-financed infrastructure projects in regions across the country where less than half of the planned investment has been completed.