According to a Reuters survey, investors expect China to maintain its benchmark lending rates at the monthly fixing on Monday because they believe the world’s second-largest economy is on track to rebound from COVID-19 downturns.
Since Beijing abruptly abandoned its tight zero-COVID approach in December, some first signs of recovery have been observed, undermining the need for an impending monetary policy loosening.
The People’s Bank of China receives suggested rates from 18 authorized commercial banks each month, and this information is used to compute the loan prime rate (LPR), which banks typically charge their best customers (PBOC).
Twenty-one respondents, or 78% of those surveyed, projected that neither the one-year LPR nor the five-year tenor will change.
The other six respondents, however, predicted that the five-year LPR would slightly decrease while the one-year tenor would remain unchanged.
The strong consensus for a sustained LPR over the next year coincided with China’s new bank loans rising more than anticipated to a record 4.9 trillion yuan ($713 billion) in January as the country’s central bank aims to jump-start the recovery.
Separately, China’s central bank increased medium-term liquidity injections this week as it renewed policy loans that were about to mature while maintaining the interest rate at the same level.
The LPR is currently based on the medium-term lending facility (MLF) rate.
The possibility for a change in the LPR is limited, according to experts at ING, given that the economy is rebounding and the PBOC kept the one-year MLF rate the same.
“In addition, the government has instructed banks to decrease their mortgage interest rates in order to help the economy. As a result, banks wouldn’t have enough space to reduce net interest margins.”
Since late last year, Beijing has gradually increased support for the property sector, which accounts for a quarter of the domestic economy, which has increased demand. As a result, China’s new home prices increased in January for the first time in a year.
