According to a recent Reuters survey, China is expected to maintain its benchmark lending rates unchanged during the upcoming announcement on Monday. This decision stems from positive first-quarter economic data, which has lessened the need for additional monetary stimulus to support the ongoing recovery.
Furthermore, the depreciation of the yuan limits the flexibility for Beijing to implement further easing measures. The loan prime rate (LPR), typically utilized by banks' top-tier clients, is determined monthly based on proposed rates submitted by 20 designated commercial banks to the People's Bank of China (PBOC).
All 30 respondents in the survey anticipate no changes to both the one-year and five-year LPRs. The one-year LPR, the basis for most new and outstanding loans in China, currently stands at 3.45%. Meanwhile, the five-year LPR, utilized as the reference rate for mortgages, remains at 3.95% following a 25-basis-point reduction in February to bolster the housing market.
The consensus for stable LPRs follows China's stronger-than-anticipated economic growth in the first quarter, offering some relief to policymakers amidst challenges in the property sector and rising local government debt.
Wang Tao, UBS's chief China economist, noted that the robust Q1 growth might deter the authorities from introducing additional macroeconomic support measures. While she believes a reduction in the medium-term policy rate is unlikely, a cut in the LPR is still plausible.
The medium-term lending facility (MLF) rate acts as a reference for LPRs, and market observers closely monitor it for indications of changes in lending benchmarks.
Concerns over the yuan's depreciation against the U.S. dollar, which has declined by 2% this year, coupled with capital outflows from a sluggish stock market, may be impeding further interest rate cuts, according to Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
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