SHANGHAI — China’s benchmark lending rate is set to remain unchanged at its June fixing on Monday, but there are growing expectations of an interest rate rise in China after the U.S. Federal Reserve adopted a more hawkish tone, a Reuters survey showed.
Twenty-two traders and analysts, or 79% of all 28 participants, in a snap Reuters poll conducted this week predicted no change in either the one-year Loan Prime Rate (LPR) or the five-year tenor.
Four respondents expected an increase of 5 basis points to both tenors this month, while another two predicted a 5 basis points rate cut to the one-year LPR.
The one-year LPR was last at 3.85%, and the five-year rate stood at 4.65%.
Strong expectations for a steady LPR came as the People’s Bank of China (PBOC) kept borrowing cost on one-year medium-term lending facility (MLF) loans unchanged this week.
The MLF, one of the PBOC’s main tools in managing longer-term liquidity in the banking system, serves as a guide for the LPR.
Some analysts said the PBOC’s monetary policy stance was unlikely to be affected by a hawkish change at its U.S. counterpart as the Fed brought forward its projections for the first post-pandemic interest rate hikes into 2023.
“We believe the PBOC’s policy will decouple from the FOMC,” analysts at ANZ said in a note.
“May’s economic data signals downside risks to China’s economic activity in the near term. Therefore, the relatively hawkish stance of the U.S. Federal Reserve is unlikely to have a bearing on China’s monetary policy.”
A slew of major activity indicators in May missed market expectations, with some analysts saying peak economic recovery from pandemic shocks might have passed.
Growth in China’s factory output slowed for a third straight month in May, likely weighed down by disruptions caused by COVID-19 outbreaks in the southern export powerhouse of Guangdong.
“The recovery momentum is moderating, and there is still unevenness across sectors … this likely points to Beijing staying on hold with ‘no sharp turns’ in its policy stance,” said Chen Jingyang, economist for Greater China, expecting one-year LPR to stay on hold this year but with more targeted supportive measures for the hard hit SMEs.
The LPR is a lending reference rate set monthly by 18 banks.
All 28 responses in the survey were collected from selected participants on a private messaging platform. (Reporting by Reuters China fixed income team; Writing by Winni Zhou; Editing by Stephen Coates)