"Macro policy stimulus will likely be announced during the annual session, and it will be a good timing for the PBOC to cut rates and signal that it stands ready to support the economic recovery." Tommy Xie, head of Greater China research at OCBC Bank, agreed rates would likely be cut in the coming months. "Easing monetary policy is likely to work hand in hand with the expansionary fiscal policy in the face of weak domestic demand. A lower interest rate will help minimise the cost of the issuance of government bonds," Xie said, adding that lower mortgage rate could also help defuse systemic risk. The LPR, which banks normally charge their best clients, is set by 18 designated commercial banks who submit proposed rates to the central bank every month. Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages. China last cut both rates in August to boost the economy. (Reporting by Winni Zhou and Brenda Goh; Editing by Kim Coghill and Jacqueline Wong)
Messaging: winni.zhou.thomsonreuters.com@reuters.net)) (Adds comments, details)
By Winni Zhou and Brenda Goh
SHANGHAI, Feb 20 (Reuters) - China kept its benchmark
lending rates unchanged for a sixth straight month in February,
as expected, with the world's second-largest economy showing
more signs of recovery from a pandemic-induced slump.
A clutch of better-than-expected data recently suggests
economic activity is rebounding as Beijing exited from its
stringent zero-COVID strategy in December and shifted to a
pro-growth policy stance.
The one-year loan prime rate (LPR) was kept
at 3.65%, while the five-year LPR was unchanged
at 4.30%.
"We expect the PBOC to stay accommodative in the first half
of this year, but only through liquidity-related actions, not
rate cuts," analysts at Barclays said in a note.
"Unlike the U.S. and EU, China remains the outlier on
monetary policy, with still benign inflation and recovering but
still weak activity creating room for the PBOC to remain
accommodative in the first half."
In a poll of 27 market watchers, 21, or 78% of all
participants, predicted no change to either rate.
New bank loans in China jumped more than expected to a
record 4.9 trillion yuan in January as the central bank looks to
kick-start recovery while new home prices rose for the first
time in a year, as Beijing stepped up support for the property
sector that accounts for a quarter of the domestic economy.
Market participants also said the LPR decision was within
expectations, as the People's Bank of China (PBOC) ramped up
medium-term liquidity injections, rolling over maturing policy
loans last week while keeping the interest rate unchanged.
The medium-term lending facility (MLF) rate serves as a
guide to the LPR and markets mostly use the medium-term rate as
a precursor to any changes to the lending benchmarks.
In spite of recovering momentum, some analysts expect rates
will ease after China's annual parliamentary gathering in March,
when the government announces key growth targets for the year.
"We think the PBOC may cut the MLF rate and banks will
subsequently reduce the LPRs as early as March following the
annual session of the National People's Congress which is
scheduled to begin on March 5," said Tommy Wu, senior economist
at Commerzbank.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.