China seen leaving benchmark lending rates unchanged in March

Paramilitary police officers stand guard in front of the headquarters of the People’s Bank of China, the central bank (PBOC), in Beijing, China September 30, 2022. REUTERS/Tingshu Wang/file photo



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SHANGHAI/SINGAPORE (Reuters) – China is widely expected to leave benchmark lending rates unchanged on Wednesday, a Reuters survey showed, as the central bank kept a key policy rate steady last week at a time when the broad economy is starting to show some signs of improvement.

The loan prime rate (LPR) normally charged to banks’ best clients is calculated each month after 20 designated commercial banks submit proposed rates to the People’s Bank of China (PBOC).

In a survey of 27 market watchers conducted this week, all respondents expected both the one-year and the five-year LPRs would stay unchanged.

Most new and outstanding loans in the world’s second-largest economy are based on the one-year LPR, which stands at 3.45%.

Meanwhile, China made its biggest-ever reduction in the five-year LPR, which serves the mortgage reference rate, to 3.95% in February to prop up the struggling property market.

The strong consensus of steady LPR fixings this month comes after the PBOC left the medium-term lending facility (MLF) interest rate unchanged last week, as authorities continued to prioritise currency stability.

“The renminbi has weakened against the U.S. dollar this year, and a reduction at this stage could trigger additional depreciation pressure on the currency,” Julian Evans-Pritchard, head of China economics at Capital Economics, said in a note.

“Policymakers aim to prevent such depreciation, as indicated by their commitment to maintaining exchange rate stability in the National People’s Congress (NPC) Work Report.”

The MLF rate serves as a guide to the LPR and markets mostly use the medium-term policy rate as a precursor to any changes to the lending benchmarks, analysts said.

Activity indicators have suggested the economy might have had a better-than-expected start to the year, with China’s factory output and retail sales beating expectations in the January-February period, offering some relief to policymakers even as weakness in the property sector remains a drag on the economy and confidence.

Still, some traders and analysts noted that PBOC Governor Pan Gongsheng said this month the bank would keep the yuan basically stable and sent a dovish message to the market by saying China had “rich monetary policy tools at its disposal.”

Investors have since ramped up bets that authorities will roll out more monetary easing measures, including a further reduction to bank reserves, to support the economy.

“With limited room to manoeuvre in the short term, we expect one more MLF and LPR cut in the coming months to support a broader stimulus policy push,” said Lynn Song, chief economist for Greater China at ING.

“However, after PBOC governor, Pan Gongsheng, hinted at more room for reserve requirement ratio (RRR) cuts ahead, we may see an RRR cut before the next MLF and LPR cut.”


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