FX.co ★ Offshore Yuan Steadies as PBOC Holds Rates

The offshore yuan stabilized around 7.12 against the US dollar on Monday, following two consecutive sessions of decline. This stabilization comes as investors evaluated the People's Bank of China (PBOC) decision regarding its key lending rates. The central bank opted to keep its benchmark loan prime rates unchanged for the fourth consecutive month, maintaining them at historic lows. This decision was anticipated by the market, despite the recent 25 basis point rate cut by the US Federal Reserve.

Specifically, the one-year Loan Prime Rate (LPR), which predominantly influences most corporate and household lending, remained at 3.0%. Meanwhile, the five-year LPR, crucial for mortgage rates, held steady at 3.5%. Both rates were previously reduced by 10 basis points in May. This cautious approach persists despite a backdrop of weakening economic activity, with August's industrial output expanding at its slowest rate in over a year, retail sales hitting a nine-month low, and export growth marking its feeblest performance since February. Additionally, credit demand has been subdued due to ongoing property sector challenges and restrictions on overcapacity. Nonetheless, the market anticipates some cautious policy easing later this year as the authorities aim to sustain growth close to the government’s target of 5%.