China expected to leave lending benchmarks unchanged this week

SHANGHAI (Reuters) – China is widely expected to keep benchmark lending rates unchanged for a second straight month on Thursday, a Reuters survey showed, although a few market watchers think authorities will step up support for the property sector.

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

Twenty-two out of 24 respondents, or about 92%, in the Reuters snap poll predicted no change to either one-year LPR or the five-year tenor.

The remaining two expected a marginal reduction to the five-year rate after the government introduced a slew of supportive measures in recent weeks to prop up the embattled property sector.

Most new and outstanding loans in China are based on the one-year LPR, which stands at 3.65%. The five-year rate influences the pricing of mortgages and is now at 4.30%. China last cut LPRs in August to boost the economy.

“LPRs are likely to stay unchanged this month, unless economic data continues to be disappointing,” said a trader at a brokerage.

China delayed the release of economic indicators scheduled for publication this week, including its third-quarter gross domestic product data due on Tuesday, as the Communist Party Congress gets under way.

Lending data beat expectations in September, lessening the urgency for an interest rate cut, analysts and traders said.

They note a weakening yuan has also limited room for more monetary policy manoeuvre as widening policy divergence with other major economies, who are raising rates aggressively, could stoke capital outflow risks.

The borrowing cost of the medium-term lending facility (MLF) serves as a guide to the LPR, and markets usually use the medium-term rate as a precursor to any changes to the lending benchmark.

Traders and analysts said the market consensus of a steady one-year LPR came as the PBOC left interest rate of its medium-term policy loans unchanged this week.

“We cannot rule out a further cut to five-year LPRs by 15 basis points given recent endeavours to support the housing market,” analysts at Maybank said in a note, adding one-year LPR is likely to take its cue from the unchanged MLF rate.

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