China likely to keep benchmark LPR for lending unchanged amid World Central Bank tightening | Investment News

SHANGHAI (Reuters) – About 90% of traders and analysts in a Reuters survey expected China to keep benchmark interest rates unchanged at their monthly fix on Monday, as global central bank tightening limited policy space to stop the economic downturn.

The Lending Prime Rate (LPR), which banks normally charge their best customers, is set on the 20th of every month, when 18 designated commercial banks submit rate proposals to the People’s Bank of China (PBOC).

Twenty-three of 26 respondents to the Reuters Snapshot predicted no changes to the one-year or five-year LPRs.

Of the other three, one expected a marginal reduction of 5 basis points in the one-year LPR, one saw a reduction in the five-year rate within the same range, and the third expected a reduction in both rates. .

Lower interest rates would help revive a Chinese economy battered by anti-pandemic measures, but traders and analysts note that the PBOC left its key medium-term rate unchanged this week, which is a guide for the LPR. .

This confirmed the market’s view that policymakers were reluctant to cut interest rates as other countries tightened because it would put downward pressure on the exchange rate. The PBOC keeps the yuan under strict control.

“China has long maintained an independent monetary policy, but at this stage it will focus more on balancing internal and external conditions, trying to avoid a direct collision of monetary policy stance” with states United States, said Wang Qing, chief macroeconomics researcher at Golden. Credit rating.

Central banks across Europe raised interest rates on Thursday, some by an amount that shocked markets, following the US Federal Reserve’s 75 basis point hike to tackle high inflation .

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

“The PBOC has been vocal in its criticism of reckless monetary accommodation in (developed) countries over the past two years. As a result, the PBOC has been more restrained in easing.”

The central bank cut the five-year LPR by 15 basis points last month. Some traders said he did this to revive China’s struggling housing sector and after just a month the effect could not yet be measured.

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

“The reduction in the 5-year prime rate implies lower interest rates for mortgages and long-term loans,” she said.

“Infrastructure projects can also benefit from lower interest charges.”

(Reporting by Xiangming Hou and Andrew Galbraith, Writing by Winni Zhou; Editing by Bradley Perrett)

Copyright 2022 Thomson Reuters.

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