China wants to leave borrowing costs for medium-term loans unchanged

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SHANGHAI, Jan 14 (Reuters) – China’s central bank is expected to roll over medium-term loans maturing on Monday and leave borrowing costs unchanged, even as a growing number of market participants are beginning to bet on a rate cut, a Reuters poll showed.

Thirty-four of the 48 traders and analysts, or 70% of all participants, polled by Reuters on Friday predicted no change in the interest rate on the one-year medium-term lending facility (MLF) when the People’s Bank of China (PBOC) is due to start making such loans next Monday worth over 500 billion yuan (US$78.65 billion).

Of the remaining 14 respondents, 11 forecast a five basis point (BP) cut in the MLF rate, while the other three forecast a larger 10 basis point cut.

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Growing concerns about possible defaults by real estate developers and the recent rapid spread of the Omicron variant of the coronavirus across the country have added to the uncertainty and raised market expectations of further monetary stimulus.

“Specifically, we see January as an important timeframe for the PBOC to further cut interest rates (MLF, LPR, etc.) to allow measures to take effect ahead of the Chinese New Year,” Citi analysts said in a statement.

China cut the LPR policy rate (LPR) and the central bank reduced the amount of cash banks are required to set aside in December as the economy slows and the outlook points to a tough 2022. Some analysts expect the PBOC could decide to wait before moving back into easing mode.

“We are still monitoring the impact of recent policy actions, so the chances for the PBOC to adjust interest rates again this month may not be high,” said Marco Sun, chief financial markets analyst at MUFG Bank.

Ken Cheung, chief Asian FX strategist at Mizuho Bank, also expects the PBOC to opt not to cut the MLF rate this month and instead expects policymakers to likely wait until March to gauge the health of the economy to estimate

Political insiders told Reuters that the PBOC is ready to unveil additional easing steps to support slowing growth, although it would likely inject more money into the economy. Continue reading

The MLF rate serves as a benchmark for the LPR, which is set on the 20th of each month. On Monday, China will also release fourth-quarter gross domestic product and key activity indicators.

($1 = 6.3570 yuan)

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Reporting by Reuters Fixed Income Team, writing by Winni Zhou; Edited by Shri Navaratnam

Our standards: The Thomson Reuters Trust Policy.

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