China widely expected to stand pat on lending benchmark LPR in Dec - analysts

SHANGHAI, Dec 19 (Reuters) - China is widely expected to keep its new benchmark lending rate unchanged on Friday, according to a survey of traders and analysts, after the central bank stood pat on borrowing cost of medium-term loans earlier this month.

Thirty-nine respondents, or near 74% of all participants in the snap survey conducted this week, predicted no change to the one-year Loan Prime Rate (LPR) in its monthly fixing on Friday.

But, about one-fourth of all respondents still expected a marginal reduction of five basis points in the LPR, though they saw no downward adjustment to the five-year tenor .

Only one participant expected marginal cuts to both one-year and five-year interest rates.

“We expect LPR to stay stable in December,” said Jacqueline Rong, senior China economist at BNP Paribas in Beijing.

“Medium-term lending facility (MLF) rate is on hold, while activities data point to signs of growth stabilisation in November. As such, the People’s Bank of China is likely to remain patient and preserve its firepower.”

The central bank conducted the MLF operations twice earlier this month, injecting a total of 600 billion yuan ($85.61 billion) into the banking system, exceeding 473.5 billion yuan in maturity. The PBOC kept one-year MLF rate in both operations unchanged at 3.25%.

MLF, one of the PBOC’s main tool in flexibly managing longer-term liquidity in the banking system, now serves as a guide for the new LPR.

According to the annual closed-door Central Economic Work Conference, China would maintain its proactive fiscal policy and prudent monetary policy, making economic adjustments more forward-looking, targeted and effective.

Top leaders also committed to increasing the quality and effectiveness of fiscal policy while monetary policy would be flexible and appropriate.

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

All 53 responses in the survey were collected from selected participants on a private messaging platform. ($1 = 7.0084 Chinese yuan) (Reporting by Hou Xiangming, Steven Bian, Li Hongwei, Wu Fang, Zhang Xiaochong and Andrew Galbraith; Writing by Winni Zhou; Editing by Muralikumar Anantharaman)