Pedestrians walk past the People's Bank of China headquarters in Beijing, China, on January 7, 2019. Giulia Marchi | Bloomberg | Getty Images

BEIJING — The People's Bank of China is choosing not to follow many other major central banks in cutting interest rates as it tries to navigate a challenging economic environment. China's central bank must manage an economy structured in many ways quite differently from that of other major regions, such as Japan or the European Union. But the PBoC faces the same question of how effective monetary policy can be today. That has significant implications for the central bank's signalling, which appeared to take a neutral stance on Monday. "The central bank would not like citizens' to develop expectations for higher inflation, and so will not likely quickly lower policy rates,‘’ Xu Chenxi, senior analyst of fixed income at Nanhua Futures, said in a Chinese language statement translated by CNBC. "The policy is more concerned with its transmission to the real economy. If the real economy can obtain financing more easily than before, or financing rates decline, then monetary policy is not eager to release an interest rate cut signal."

On Monday, China's central bank set its new "loan prime rate" exactly the same for October as September: 4.2% for the one-year rate and 4.85% for the five-year. The rate, known as LPR and set monthly, was announced in August as a way to increase the role of market forces in setting interest rates, while lowering financing costs. "Keeping LPR unchanged in October may reflect a more neutral monetary policy stance. In addition, it is possible that the recent uptrend in CPI has started to become a constraint on monetary policy as well," China International Capital Corp (CICC) chief economist Hong Liang and analyst Eva Yi said in a report Monday.

The 'pork problem'

Easier monetary policy typically results in higher inflation, which is already on the rise in China due to soaring pork prices. The country is dealing with a massive shortage in the meat staple caused by an outbreak of African swine fever in Chinese pig farms last year. In September, pork prices leaped 69.3% from a year ago. For Dan Wang, China analyst at The Economist Intelligence Unit, the People's Bank of China needs to balance efforts to reduce interest rates in the long term without cutting short-term rates too drastically. She noted that while the jump in pork prices sent the consumer price index to a near six-year-high — quite worrisome for anyone just looking at the headline figure — excluding food and energy prices puts CPI at a moderate 1.5%. "China doesn't have an inflation problem. It has a pork problem," Wang said. "Keeping monetary policy constrained is a stabilizer for the regional economy and I would give the Chinese government credit for that."