China seen keeping lending benchmark unchanged

[SHANGHAI] China's benchmark lending rate is likely to remain unchanged at the first monthly fixing of the year on Wednesday, steady for the ninth straight month, as the economy recovers from the coronavirus shock.

Twenty-six traders and analysts, or 87 per cent of all 30 participants, in a snap Reuters poll conducted this week predicted no change in either the one-year Loan Prime Rate (LPR) or the five-year tenor.

The other four respondents expected a rise in the LPR this month, with one forecasting a marginal 5 basis point rise to both rates.

The one-year LPR was last at 3.85 per cent after 30 basis points of rate cuts last year, and the five-year rate stood at 4.65 per cent after 15 bps of cuts in 2020.

China's economy picked up speed in the fourth quarter, data showed on Monday, with growth beating expectations and is poised to expand further this year even as the global pandemic rages unabated.

"We expect credit tightening and fiscal consolidation in 2021, but not policy rate hikes," said Li Wei, senior China economist at Standard Chartered in Shanghai.

"The People's Bank of China (PBOC) is likely to maintain a slightly dovish bias near term, given uncertainty associated with the uneven economic recovery, sporadic new Covid-19 outbreaks and CNY appreciation pressure." The strong market expectations for a steady LPR fixing in January also came as the PBOC kept borrowing cost on medium term loans unchanged for nine months in a row.

China's central bank conducted a small net drain through medium-term lending facility (MLF) operations in the banking system on Friday and kept the rates on the facility unchanged, a move investors say suggests a shift to a tightening bias in monetary policy.

The MLF, one of the PBOC's main tools in managing longer-term liquidity in the banking system, serves as a guide for the LPR.

The LPR is a lending reference rate set monthly by 18 banks.

All 30 responses in the survey were collected from selected participants on a private messaging platform.

REUTERS