China maintains benchmark rates for sixth month, further easing expected

By Winni Zhou and Brenda Goh

SHANGHAI, Feb 20 (Reuters) – China kept benchmark interest rates unchanged for the sixth consecutive month in February, as expected, as the world’s second-largest economy showed further signs of recovery from a recession-induced recession. COVID-19 pandemic.

A recent run of better-than-expected data suggests economic activity is picking up, as Beijing ditched its hawkish “no COVID” strategy in December and adopted a pro-growth stance.

The one-year prime rate (LPR) remained at 3.65%, while the five-year LPR remained at 4.30%.

“We expect the PBOC to maintain accommodative monetary policy in the first half, but only through liquidity-related measures and not rate cuts,” Barclays analysts said in a note.

“Unlike the US and EU, China remains the outlier in monetary policy, with inflation still benign and activity recovering but still weak, allowing the PBOC to remain dovish in the first half of the year. .”

In a survey of 27 market watchers, 21, or 78% of all participants, predicted no change in either rate.

New bank loans in China rose more than expected to a record 4.9 trillion yuan in January as the central bank tries to reignite the recovery, while new house prices rose for the first time in a year and that Beijing is stepping up its support for the real estate sector, which accounts for a quarter of the national economy.

Market participants also claimed that the LPR’s decision was predictable, with the People’s Bank of China (PBOC) increasing medium-term liquidity injections, renewing credit lines that expired last week and maintaining the rate of interest unchanged.

The Medium-Term Lending Facility (MLF) rate serves as a guide to the medium-term benchmark interest rate and is often used by markets as a precursor to any changes in lending benchmarks.

Despite the recovery momentum, some analysts expect rates to ease after the annual meeting of China’s parliament in March, when the government will announce key growth targets for the year.

“We believe the PBOC may lower the MLF rate and then the banks will lower the LPR as early as March after the annual session of the National People’s Congress, which is scheduled to start on March 5,” said economist Tommy Wu. .Head of Commerzbank.

“Macroeconomic policy stimulus will likely be announced in the annual session, and now will be a good time for the PBOC to cut rates and signal its willingness to support the economic recovery.”

Tommy Xie, head of Greater China research at OCBC Bank, agreed that rate cuts are likely in the coming months.

“Easy monetary policy is likely to go hand in hand with expansionary fiscal policy in the face of weak domestic demand. A lower interest rate will help minimize the cost of issuing government bonds,” he said. said Xie, adding that a lower mortgage rate could also help. defuse systemic risk.

The LPR, which banks typically charge their best customers, is set by 18 designated commercial banks which submit monthly rate proposals to the central bank.

Most new and existing loans in China are based on the one-year LPR, while the five-year rate influences the price of mortgages. China last cut both rates in August to stimulate the economy.

(Reporting by Winni Zhou and Brenda Goh; Editing by Kim Coghill and Jacqueline Wong, Spanish editing by José Muñoz in the Gdańsk newsroom)