China likely to lower benchmark lending rates

Expectations for imminent monetary easing were heightened last week when the central bank cut the amount of cash banks must hold in reserves

Benchmark lending rates for China's commercial banks are likely to be lowered at a monthly fixing on Wednesday, a Reuters survey showed, as Beijing cautiously eases monetary conditions to aid an economy hit by coronavirus lockdowns in several cities.

The loan prime rate (LPR), which banks normally charges their best clients, is set on the 20th of each month, when 18 designated commercial banks submit their proposed rates to the People's Bank of China.

A vast majority of the 28 traders and analysts surveyed in a snap Reuters poll on Tuesday expect a reduction this month.

Among them, 11, or 39 per cent of all respondents, predicted a marginal cut of 5 basis points (bps) to both the one-year loan prime rate (LPR) and the five-year rate on Wednesday. Another six participants also expect a reduction to either rates within a range of 5 to 10 bps. The remaining 11 respondents expected both rates to remain unchanged this month.

Most new and outstanding loans in China are based on the one-year LPR, which currently stands at 3.7 per cent. The five-year rate, which influences the pricing of home mortgages, is 4.6 per cent.

China last lowered the LPR in January, and has held the rates steady in the following two months.

Expectations for imminent monetary easing were heightened last week when the People's Bank of China (PBOC) cut the amount of cash banks must hold in reserves.

"The easing cycle is still underway, but is not in the traditional format," said Ken Cheung, chief Asian FX strategist at Mizuho Bank, who expected a 10 bps cut in the LPR on Wednesday.

The PBOC has eased policy cautiously, lowering the RRR by a smaller-than-expected margin to provide a relatively modest cash injection.