China expected to stand pat on lending benchmarks in December -survey

SHANGHAI/SINGAPORE : China is widely expected to leave lending benchmark rates unchanged at a monthly fixing on Wednesday, a Reuters survey showed, after the central bank last week kept its medium-term 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 28 market watchers conducted this week, all participants predicted both the one-year LPR and the five-year tenor 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 per cent. 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 per cent now. It was lowered by 10 basis points so far this year.

The strong consensus of steady LPR fixings comes after the PBOC ramped up liquidity injections through medium-term policy loans last week, while keeping the interest rate unchanged.

The central bank injected a net 800 billion yuan ($112.02 billion) of fresh funds into the banking system through medium-term lending facility (MLF) loans, booking the biggest monthly increase on record.

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.

“Policymakers may want more time to evaluate the effects of recent fiscal support and property easing measures … before adjusting the benchmark rate,” Julian Evans-Pritchard, head of China economics at Capital Economics, said in a note.

“Despite this, considering the weak economic momentum and the renminbi returning to levels more favourable to the PBOC, we think the PBOC will resume rate cuts before long,” he added, forecasting 20 basis points of cuts by the end of the second quarter next year.

China’s yuan has had a volatile year, having weakened 6.14 per cent against the dollar at one point before recouping some of the losses on growing bets that U.S. interest rates have peaked.

The onshore spot yuan strengthened 2.55 per cent in November, its best month this year, but it is still down 3.4 per cent year-to-date.

($1 = 7.1419 Chinese yuan)

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