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China’s banks seen keeping benchmark loan rate steady for 7th month

China’s loan prime rate (LPR) – a reference rate set monthly by 18 banks – is likely to remain unchanged for a seventh straight month at its November fixing on Friday, a Reuters survey of traders, analysts and economists showed.

Many respondents said they did not expect any adjustments to the rate through the rest of the year, while expecting authorities to keep conditions accommodative to help China’s economy recover from disruption wrought by the coronavirus pandemic.

Thirty-one out of 36 traders and analysts in a snap Reuters poll predicted no change in either the one-year or five-year LPRs. Four predicted an increase.

The one-year LPR stands at 3.85% and the five-year rate at 4.65%. Both were last cut in April, their second reduction of the year.

Liu Ligang, chief China economist at Citigroup in Hong Kong, saw little chance for the People’s Bank of China to lower rates and expects them to be held steady through 2021.

“China’s policy stance this year was largely in response to the pandemic,” Liu said.

“Recent remarks by the PBOC were relatively hawkish, mentioning an exit from monetary policy easing. So chances of a RRR cut or a rate cut are relatively low this year,” he said.

“We believe chances for a rate hike next year are also low. The PBOC is likely to gradually exit from easing, and we expect the central bank to maintain the current rate level towards the end of next year,” he added.

Senior PBOC officials have said policy changes and a more flexible monetary policy will be considered as the economy recovers, while also avoiding any hasty moves.

The strong expectations for the LPR to be held steady came as the PBOC earlier this week kept borrowing costs on its medium-term lending facility (MLF) unchanged for the seventh month in a row.

The MLF is one of the PBOC’s main tools in managing longer-term liquidity in the banking system and serves as a guide for the LPR.

All 36 responses in the survey were collected from selected participants on a private messaging platform.
Source: Reuters (Reporting by Steven Bian, Hongwei Li and Andrew Galbraith, Writing by Winni Zhou; Editing by Simon Cameron-Moore)

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