China likely to keep benchmark lending rates unchanged amid global central bank tightening

A picture of the headquarters of the People’s Bank of China (PBOC), the central bank, in Beijing, China on September 28, 2018. REUTERS/Jason Lee

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SHANGHAI (Reuters) – Nearly 90 percent of traders and analysts polled by Reuters expected China to keep benchmark interest rates unchanged when they are set monthly on Monday, as the World Central Bank tightened limited policy room to stem an economic slowdown.

The loan base rate (LPR), which banks typically charge their best customers, is set on the 20th of each month, when 18 designated commercial banks submit their proposed rates to the People’s Bank of China (PBOC).

Twenty-three out of 26 respondents to a Reuters quick poll predicted no change in either LPRs for a year or five years.

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Of the other three, one projected a marginal 5 basis point decline on the one-year LPR, one saw the five-year rate decline by the same margin, and the third projected a reduction in both rates.

Lower interest rates should help revive China’s economy battered by anti-epidemic measures, but traders and analysts noted that the People’s Bank of China (PBOC) this week left its medium-term policy rate unchanged, a clue to LPR.

This reaffirmed market views that policy makers were wary of cutting rates as other countries tighten, as doing so would put downward pressure on the exchange rate. The People’s Bank of China (PBOC) keeps the yuan under tight control.

said Wang Qing, chief macroeconomic researcher at Golden Credit Rating.

Central banks across Europe raised interest rates on Thursday, some by amounts that shocked markets, in the wake of the US Federal Reserve raising 75 basis points to combat soaring inflation. Read more

“If the challenges facing Western central banks today teach China any lesson, it is that monetary policy should not be too accommodative,” said BNP Paribas economists.

“The People’s Bank of China (PBOC) has been vocal in its criticism of reckless monetary adjustment in (developed) countries in the past two years. Therefore, the PBOC has been more conservative in easing.”

The central bank cut the five-year LPR by 15 basis points last month. Some traders said it did so to revive China’s faltering housing sector, and that after only a month, the impact could not be measured yet.

However, Iris Pang, chief Greater China economist at ING, believes the five-year LPR could be reduced again this month.

“Reducing the five-year prime rate implies that interest rates on mortgages and long-term loans will go down,” she said.

“Infrastructure projects may also benefit from lower interest costs.”

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Additional reporting by Xiangming Hu and Andrew Galbraith; Reporting by Winnie Zhou; Editing by Bradley Perrett

Our Standards: Thomson Reuters Trust Principles.

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