China may hold lending benchmarks steady as recovery remains on track -analysts

China may hold lending benchmarks steady as recovery remains on track -analysts
© Reuters. FILE PHOTO: Paramilitary police officers stand guard in front of the headquarters of the People’s Bank of China, the central bank (PBOC), in Beijing, China September 30, 2022. REUTERS/Tingshu Wang

SHANGHAI/SINGAPORE (Reuters) – China is widely expected to stand pat on lending benchmarks at the monthly fixing on Thursday, a Reuters survey showed, as economic recovery has been well on track – as seen from better-than-expected first-quarter data.

China’s economy grew at a faster-than-expected pace in the first quarter, reducing the urgency for authorities to ease monetary policy to aid recovery, traders and economists said.

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 30 market watchers, 27 predicted no change to either the one-year LPR or five-year tenor.

The remaining three respondents forecast a marginal 5 basis-point reduction to either the one-year or five-year LPR.

“With the better-than-expected (data) reading in Q1 and the low base from last year in the coming quarters, the ‘around 5.0%’ growth target for this year could be a low-hanging fruit,” Citi analysts said in a client note.

The consensus of steady LPRs also came as the central bank bolstered liquidity support for the economy as it rolled over maturing medium-term policy loans with higher cash offerings for the fifth month on Monday, while keeping the interest rate unchanged as widely expected.

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

“We expect no cut on one-year MLF or one-year LPR in the near term, as China is still in a recovery phase and the U.S. Federal Reserve still hasn’t yet ended its interest rate hiking cycle,” said Lin Li, head of global markets research for Asia at MUFG Bank.

The Fed is widely expected to raise its policy rate once more in May, while monetary easing in China could further widen yield differentials between the world’s two biggest economies, hurting the yuan and risking capital outflows.

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