According to a Reuters survey of 27 market analysts, it is widely anticipated that China will maintain its benchmark lending rates unchanged during the upcoming Wednesday session. This expectation comes in the wake of the recent decision by the central bank to keep a key policy rate steady. The loan prime rate (LPR), which typically applies to the most creditworthy clients of banks, is recalculated monthly based on submissions from 20 designated commercial banks to the People’s Bank of China (PBOC).
All 27 respondents in the survey anticipate that both the one-year and five-year LPRs will remain unchanged. Most loans in China, being new or outstanding, are based on the one-year LPR, currently set at 3.45%. However, in February, the five-year LPR, used as a reference for mortgage rates, saw its most significant reduction ever, lowered to 3.95% to support the struggling property market.
The prevalent expectation for stable LPRs this month aligns with the recent decision by the PBOC to leave the medium-term lending facility (MLF) interest rate unchanged. This continuity underscores the authorities’ emphasis on maintaining currency stability, particularly amid the renminbi’s depreciation against the U.S. dollar this year.
Julian Evans-Pritchard, head of China economics at Capital Economics, noted policymakers’ commitment to preventing further currency depreciation, especially evident in their focus on exchange rate stability highlighted in the National People’s Congress (NPC) Work Report.
The MLF rate serves as a reference for the LPR, and market analysts often interpret changes in the former as potential precursors to adjustments in lending benchmarks. Although recent economic indicators have shown signs of improvement, including better-than-expected factory output and retail sales, the property sector’s weakness continues to weigh on overall economic performance and confidence.
However, PBOC Governor Pan Gongsheng’s remarks this month, emphasizing the bank’s commitment to stabilizing the yuan and hinting at ample monetary policy tools, have led investors to anticipate further monetary easing measures. Lynn Song, chief economist for Greater China at ING, predicts the possibility of additional MLF and LPR cuts in the near future, with a potential reserve requirement ratio (RRR) cut preceding them as suggested by Pan Gongsheng’s remarks.