China set to keep borrowing cost of medium-term loans unchanged

China set to keep borrowing cost of medium-term loans unchanged
Written by Publishing Team

A Reuters survey showed that China’s central bank is expected to renew maturing medium-term loans and keep borrowing costs unchanged on Monday, although a growing number of market participants began betting on a rate cut.

34 out of 48 traders and analysts, or 70% of all respondents, polled by Reuters on Friday, expect no change in the interest rate on the one-year medium-term lending facility (MLF) when the People’s Bank of China (PBOC) . Up to 500 billion yuan ($78.65 billion) of those loans are due next Monday.

Of the remaining 14 respondents, 11 expected a five basis point (BP) reduction of MLF, while the other three expected a larger 10 basis point (BP) reduction.

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Rising concerns about potential defaults by property developers and the recent rapid spread of the Omicron variant of the coronavirus across the country have added to more uncertainty and pushed market expectations for more monetary stimulus.

“In particular, we see January as a key time frame for the PBOC to cut interest rates further (MLF, LPR, etc.) until the measure takes effect before the Chinese New Year,” Citi analysts said in a note.

China lowered its key loan lending rate (LPR) and the central bank cut the amount of cash banks must put aside in December, as the economy slows and forecasts point to a tough 2022. Some analysts speculate that the People’s Bank of China may choose to wait before then. Enter mitigation mode again.

“We are still watching the impact of recent policy measures, so the chances of the PBoC adjusting interest rates again this month may not be high,” said Marco Sun, chief financial markets analyst at MUFG Bank.

Ken Cheung, chief Asian currency strategist at Mizuho Bank, expects the People’s Bank of China to choose not to cut the MLF rate this month and instead see policymakers waiting until March to gauge the health of the economy.

Policy insiders told Reuters that the People’s Bank of China is on the verge of revealing additional accommodative steps to support slowing growth, although it may prefer to inject more liquidity into the economy. Read more

The MLF is a guide to LPR, which is determined on the 20th of each month. On Monday, China is due to release its fourth-quarter GDP and key activity indicators.

(1 dollar = 6.3570 yuan)

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Reuters Fixed Income Team Report, Writing by Winnie Chou; Edited by Shree Navaratnam

Our Standards: Thomson Reuters Trust Principles.


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