China’s benchmark lending rates are falling even as other banks c. tighten

SHANGHAI, Dec. 17 (Reuters) – China’s benchmark lending rates will likely be cut next Monday, after standing still for 20 months, according to a Reuters flash poll, highlighting Beijing’s divergence in monetary policy with other major global economies.

Twenty-nine of 40 traders and economists polled by Reuters on Friday predicted cuts in China’s prime lending rate (LPR), citing the need to help a slowing economy and easier monetary conditions.

Of those surveyed, 15 predicted a five basis point (BP) reduction in the one-year LPR only, while 14 predicted reductions of this magnitude in both the one-year and five-year LPRs.

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The poll was conducted during a busy week for central banks which saw major economies begin to pull out of pandemic-era stimulus measures. The US Federal Reserve has signaled several rate hikes next year while the Norges Bank and the Bank of England have raised interest rates. Read more

A reduction in the LPR this month would be unusual, as China’s central bank left the one-year medium-term loan (MLF) rate unchanged on December 15, to which LPR rates are typically pegged.

The one-year LPR is now 3.85%, while the five-year LPR is 4.65%. The two tariffs have not changed since April 2020.

A trader, who declined to be named, said he predicted LPR cuts because “many sectors and people are suffering from a downturn in the economy” as central bank steers rates downward.

The People’s Bank (PBOC) of China said on Thursday it would keep reasonably abundant liquidity and help reduce the costs of financing businesses. Read more

Some analysts say the latest Chinese reductions in bank reserve requirement ratios (RRRs) have also enabled banks to lower lending rates. Read more

The PBOC announces LPRs on the 20th of each month after collecting quotes from 18 selected banks.

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Reporting by SHANGHAI NEWSROOM; Editing by Ana Nicolaci da Costa

Our Standards: Thomson Reuters Trust Principles.

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