China set to leave lending benchmarks unchanged as economic recovery seen on track

SHANGHAI  – China is widely expected to leave its benchmark lending rates unchanged at the monthly fixing on Monday, a Reuters survey showed, as investors believe the world’s second-largest economy is on track to recover from COVID-19 slumps.

Some early signs of recovery seen from a bout of better-than-expected economic data since Beijing’s abrupt exit from its strict zero-COVID strategy in December have undermined the urgency of imminently easing monetary policy.

The loan prime rate (LPR), which banks normally charge their 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, 21, or 78 percent of all participants, predicted no change to either the one-year LPR or the five-year tenor.

The other six respondents, however, expected a marginal interest rate reduction to the five-year LPR, while believing the one-year tenor would stay steady.

The strong consensus for a steady one-year LPR came as new bank loans in China jumped more than expected to a record 4.9 trillion yuan ($713 billion) in January as the central bank looks to kickstart recovery.

Separately, China’s central bank ramped up medium-term liquidity injections as it rolled over maturing policy loans this week, while keeping the interest rate unchanged.

The medium-term lending facility (MLF) rate now serves as a guide to the LPR.

“Given that the economy is recovering and that the PBOC left the one-year MLF rate unchanged, we predict that the chance for a change in the LPR is small,” economists at ING said in a note.

“Moreover, banks have been told by the government to offer lower interest rates on mortgages to provide support to the economy. This would result in banks not having enough room to squeeze net interest margins.”

China’s new home prices rose in January for the first time in a year, as Beijing has progressively stepped up support for the property sector that accounts for a quarter of the domestic economy since late last year has boosted the demand.

($1 = 6.8764 Chinese yuan)