October 18, 2019 / 6:10 AM / a month ago

China's new lending benchmark set to be lowered marginally for third month - Reuters poll

SHANGHAI (Reuters) - China is expected to cut its newly introduced benchmark lending rate for the third straight month, a Reuters poll conducted this week showed, as policymakers continue to lower borrowing cost in an economy growing at the slowest pace in almost three decades.

FILE PHOTO: A Chinese national flag flutters outside the headquarters of the People's Bank of China, the Chinese central bank, in Beijing, China April 3, 2014. REUTERS/Petar Kujundzic/File Photo

Forty-eight respondents, or 71% of all participants including traders and analysts, predicted a reduction in the Loan Prime Rate (LPR) in monthly fixing on Monday.

Another 20 respondents forecast no change in the interest rate.

Among those who forecast a reduction in the LPR, over 70% of them predicted a no more than 5-basis-point cut in the one-year LPR CNYLPR1Y=CFXS and tipped the 5-year rate CNYLPR5Y=CFXS to be unchanged. A lower LPR could translate to lower borrowing costs for companies and consumers in the real economy.

“I think LPR may trend down further gradually to reflect the narrowing credit spread,” Tommy Xie, head of Greater China research at OCBC Bank in Singapore said.

One-year LPR was set at 4.20% in September, down 5 bps from the previous rate at 4.25%. The 5-year LPR was unchanged at 4.85% last month.

A batch of recent data underlined broad economic weakness, boosting prospects for more stimulus from Beijing as policymakers try to prevent a sharper downturn.

China’s economy grew at the weakest pace in nearly three decades in the third quarter, official data showed on Friday, due to a costly trade war with the United States and weak factory production.

The LPR is a lending reference rate set monthly by 18 banks. The People’s Bank of China (PBOC) revamped the mechanism to price LPR in August, loosely pegging it to the rate on the central bank’s medium-term lending facility (MLF).

China’s central bank unexpectedly extended 200 billion yuan ($28.24 billion) worth of loans through MLF on Wednesday while keeping the lending rate unchanged at 3.3%.

Reporting by Wu Fang, Steven Bian, Li Hongwei, Hou Xiangming and Andrew Galbraith; Writing by Winni Zhou; Editing by Shri Navaratnam

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