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China seen keeping lending benchmarks steady, cut expectations grow: Reuters poll

China seen keeping lending benchmarks steady, cut expectations grow: Reuters poll
© Reuters. FILE PHOTO: People wearing protective masks visit a main shopping area, following new cases of the coronavirus disease (COVID-19), in Shanghai, China January 21, 2022. REUTERS/Aly Song

SHANGHAI (Reuters) – China is likely to keep benchmark lending rates unchanged at its monthly fixing on Monday, a Reuters survey found, after the central bank surprised investors by forgoing a cut to medium-term lending rates this week.

The poll nevertheless found expectations for cuts growing after Vice Premier Liu He on Wednesday said Beijing would roll out more support measures for the Chinese economy.

Among 36 financial institutions surveyed in a snap Reuters poll, just over half said they expected China’s one-year loan prime rate (LPR) and the five-year rate to remain unchanged at the March fixing.

Five respondents said they anticipated a 5 basis point reduction in the five-year rate and no change in the one-year rate.

“I think they’ll cut the five-year, since the one-year follows the MLF,” said a trader at a Chinese bank. “They want to stabilise the property market so it’s more important to cut the five-year.”

The central bank surprised markets on Tuesday by not cutting its one-year medium-term lending facility (MLF) rate, despite growing risks to the economic outlook, including mounting COVID-19 disruptions, increasing global risks from the Ukraine conflict and a weak property market.

Reflecting market uncertainty, other respondents predicted a wide range of different cuts.

Four respondents expected a 5 basis point cut in the one-year rate, but no change in the five-year, and six respondents said they expected at least one of the rates to be cut by 10 basis points.

Regardless of whether Monday’s fixing brings a cut, investors see Liu’s comments as having boosted the likelihood of other easing measures, particularly as China struggles with a worsening COVID-19 outbreak.

“Given strict social distancing measures, it is likely that more cities could find themselves being put under ‘semi-lockdown’,” analysts at ING said in a note.

“We expect the central bank to respond with targeted (reserve requirement ratio) cuts aimed at supporting small and medium-sized enterprises.”

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of home mortgages.

The one-year LPR is 3.7% following cuts of 5 and 10 basis points in December and January, respectively, while the five-year LPR is 4.6% after a 5-basis-point cut in January.

The MLF rate serves as a guide to the LPR, which is decided on the 20th of each month.

Source: Investing.com

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