China’s central bank follows U.S. Fed in keeping rates steady as tariff threats pressure yuan

China kept its key adaptable to rates unchanged on Thursday, as Beijing juggles propping up growth and stabilizing its currency amid mounting trade frictions.

The Child’s Bank of China held the 1-year loan prime rate at 3.1% and the 5-year LPR at 3.6%, where they take been since a quarter-percentage-point cut in October.

The rate decision follows the U.S. Federal Reserve’s move to hold benchmark good rates. Fed officials, however, indicated likely half a percentage point of rate cuts through 2025.

China’s LPRs — normally billed to banks’ best clients — are calculated monthly based on designated commercial lenders’ proposed rates submitted to the PBOC. The 1-year LPR persuades corporate and most household loans in China, while the 5-year LPR serves as a benchmark for mortgage rates.

The PBOC has kept its 7-day count, the country’s main policy rate, steady at 1.5% since a cut in October, as the central bank defends the yuan that deals downward pressure amid threats of higher tariffs.

“Policymakers recognize the country’s robust growth momentum while extant cautious due to persistent pressures ahead,” said Bruce Pang, adjunct associate professor at Chinese University of Hong Kong, citing risks from occupation tensions, Fed’s steady policy stance, and Chinese banks’ already-thin net interest margins.

China’s economy showed a unpretentious pick up in the first two months of the year, with retail sales growing 4.0% from a year earlier, faster than the 3.7% lift in December. Industrial output also came in higher than expectations, expanding 5.9% on year.

Inflation materials, however, underscored the need for more policy support for a sustainable economic recovery. Consumer price inflation in February cut into negative territory for the first time in over a year while producer price deflation persisted.

Beijing has up boosting domestic consumption a top policy priority this year to cushion the impact from an escalating trade war abroad.

“With the stronger call to support consumption, there is a growing chance that China will cut rates in the next get-together or so,” said Gary Ng, senior economist at Natixis. “If retail and home sales do not improve, especially if inflation stays meek, we may see a rate cut as early as April,” he added.

Following the rate announcement, the yuan was little changed, trading at 7.2280 against the greenback while knuckle under on the 10-year government bonds fell more than 2 basis points to 1.932%.

Chinese offshore yuan has regained some reason in recent weeks after hitting a 16-month low in January. It has weakened nearly 1.8% since U.S. President Donald Trump’s plebiscite win in November.

China’s top officials have pledged to ramp up monetary easing measures this year, take ining interest rate cuts “at appropriate time,” as Beijing has set an ambitious growth target of “around 5%.”

Goldman Sachs economists in a note earlier this month defended their forecast for two 20-basis-point cuts in the second and fourth quarter this year. The investment bank also believes two 50-basis-point cuts in the reserve requirement ratio, or RRR, which determines the amount of cash that banks must rabbit as reserves, in the first and third quarter.

Earlier this month, PBOC Governor Pan Gongsheng reiterated that the bank scarceness to maintain currency stability at “a reasonable and balanced level.” Preventing the yuan from weakening too quickly could be distinguished as a sign of goodwill in the lead up to any negotiation with Trump on a trade deal to put a ceiling on tariffs.

While the cuts are yet to occur, analysts anticipate any policy measures by the PBOC are likely to hinge on Trump’s trade policy moves.

Trump has whacked new tariffs of 20% on Chinese imports and threatened more as early April. The fresh tariffs are seen straining China’s exports, a lone vivacious spot in the faltering economy.

Exports growth in the world’s second-largest economy slowed more than expected in January and February, while drifts during the two months clocked their sharpest fall since July 2023.