China expected to stand pat on lending benchmarks in December: survey
CHINA is widely expected to leave lending benchmark rates unchanged at a monthly fixing on Wednesday (Dec 20), a Reuters survey showed, after the central bank kept its medium-term policy rate unchanged last week.
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 that 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, which influences the pricing of mortgages, is 4.2 per cent now. It has been 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.
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The central bank injected a net 800 billion yuan (S$152 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,” said Julian Evans-Pritchard, head of China economics at Capital Economics.
“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 US dollar at one point before recouping some of the losses on growing bets that US interest rates have peaked.
The onshore spot yuan strengthened 2.6 per cent in November, its best month this year, but it is still down 3.4 per cent year-to-date.
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