China set to leave lending benchmark LPRs unchanged – poll

SHANGHAI/SINGAPORE: China is widely expected to leave lending benchmark rates unchanged at a monthly fixing on Monday, a Reuters survey showed, after the central bank surprised markets by holding a key policy rate unchanged.

The loan prime rate (LPR) normally charged to banks’ best clients is calculated each month after 18 designated commercial banks submit proposed rates to the People’s Bank of China (PBOC).

In a poll of 27 market watchers conducted this week, all but one participant predicted both the one-year LPR and the five-year tenor would stay unchanged.

The remaining respondent expected a marginal reduction to the five-year LPR, while predicting the one-year rate would stay on hold.

Most new and outstanding loans in the world’s second largest economy are based on the one-year LPR, which stands at 3.45%. It was lowered twice by a total of 20 basis points in 2023.

The five-year rate influences the pricing of mortgages and is 4.20% now. It was cut by 10 basis points last year.

The consensus for a steady one-year LPR comes as the PBOC left the medium-term lending facility (MLF) rate unchanged on Monday, defying market expectations for a cut as a weaker currency limited the scope of monetary easing in the near term to boost the economy.

“We expect the one-year LPR rate to be held at 3.45% following an unchanged MLF rate,” analysts at Barclays said in a note.

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.

China’s yuan has faced renewed depreciation pressure into the new year, pressured by a buoyant dollar on signs of resilience in the U.S. economy and caution about Federal Reserve rate cuts.

The onshore yuan has lost about 1.4% year-to-date to the weakest level in two months.

“In this scenario, the PBOC may consider cutting interest rates when the Fed offers more clues on its rate cut timetable this year, with the first rate cut to come as soon as in March,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank. – Reuters