March 19, 2020 / 7:48 AM / 13 days ago

China's key lending rate may be cut on Friday - analysts

SHANGHAI, March 19 (Reuters) - China is widely expected to cut its benchmark lending rate on Friday to help its virus-stricken economy, a survey of traders and analysts found, though borrowing costs on medium-term loans were left unchanged earlier this week.

Forty respondents, or 71.4% of all participants in the survey, predicted a reduction in the Loan Prime Rate (LPR) in the monthly fixing on Friday.

Another 16 respondents forecast no change in the interest rate.

Among those who forecast a reduction in the LPR, 36 predicted either a 5-basis-point or 10-basis-point cut in the one-year LPR and no change to the 5-year rate . A lower LPR could translate to lower borrowing costs for companies and consumers in the real economy.

Both tenors were lowered in February.

China’s central bank left borrowing cost on its one-year medium-term lending facility (MLF) loans unchanged on Monday, despite its U.S. counterpart’s decision to slash interest rates to near zero to counteract the economic shock from the coronavirus outbreak.

“The surprising status quo of one-year MLF yield at 3.15% had pared back the expectation of a 10-basis-point cut in the one-year LPR fixing, while we reckon that a 5-basis-point cut to 4.00% will be a more likely case now,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.

However, two respondents expected a 10-basis-point reduction to the one-year LPR and a marginal 5-basis-point cut to the five-year tenor. Another two participants predicted both tenors would be lowered by 10 basis points.

The People’s Bank of China (PBOC) has rolled out powerful easing measures to lower financing costs since the spread of the flu-like disease in late January led to large scale travel restrictions. The coronavirus epidemic has killed 3,245 people on the China mainland.

The central bank cut the amount of cash that some qualifying banks must hold as reserves last Friday, releasing 550 billion yuan ($77.80 billion) in liquidity.

“The targeted reserve requirement ratio (RRR) cut set the tone that China may help lower funding costs for banks further so that banks will lower the LPR to support the real economy,” said Tommy Xie, head of Greater China research at OCBC Bank.

The LPR is a lending reference rate set monthly by 18 banks. The PBOC revamped the mechanism to price LPR in August 2019, loosely pegging it to the MLF rate.

All 56 responses in the survey were collected from selected participants on a private messaging platform. ($1 = 7.0691 Chinese yuan) (Reporting by Steven Bian, Li Hongwei, Hou Xiangming, Wu Fang and Andrew Galbraith, writing by Winni Zhou)

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