China expected to keep lending benchmark unchanged: analysts

SHANGHAI (Reuters) - China is expected to stand pat on its benchmark lending rate on Wednesday, after the central bank kept medium-term funding cost for financial institutions steady last week, a Reuters survey of traders and analysts found.

Thirty-four respondents, or 73.9% of participants in the survey, expected no change to the one-year loan prime rate (LPR) CNYLPR1Y=CFXS or the five-year tenor CNYLPR5Y=CFXS in its monthly fixing on Wednesday.

Eleven respondents still expected a marginal reduction of five basis points in the one-year LPR, but saw no downside adjustment to the five-year tenor.

Only one among all 46 participants predicted a five-basis-point cut to both tenors.

Most new and outstanding loans are based on the LPR, while the five-year rate influences the pricing of mortgages. One-year LPR now stands at 3.85 %, while the five-year tenor was at 4.65%.

Markets usually take the PBOC’s attitude on its medium-term lending facility (MLF) rate - a gauge serves as guide for the LPR - as an indicator for any adjustment to the lending benchmark.

“The MLF rate was unchanged this month, and recent market rates were slowly going up, contributing banks lacked motivation to submit a lowered quotation,” said one of the survey respondents.

China’s central bank kept the interest rate on MLF loans steady last Friday, which some saw as a surprise as authorities have stepped up the pace of monetary easing recently to combat the worst economic slowdown in decades.

Gross domestic product (GDP) shrank 6.8% in the first quarter from a year earlier as the coronavirus outbreak and tough containment measures paralyzed activity across much of the country.

Some market participants believe more aggressive monetary and fiscal stimulus will be rolled out soon to help companies and consumers, possibly at China’s annual National People’s Congress (NPC) session starting on May 22.

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 46 responses in the survey were collected from selected participants on a private messaging platform.

Reporting by Reuters fixed income team, Writing by Winni Zhou. Editing by Gerry Doyle