China set to keep borrowing cost of medium-term loans unchanged

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SHANGHAI, Jan 14 (Reuters) – China’s central bank is expected to renew maturing medium-term loans on Monday and keep borrowing costs unchanged, although a growing number of market participants are starting to bet on lower rate, according to a Reuters survey.

Thirty-four of 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 loan facility (MLF) when the Bank People’s Republic of China (PBOC) is expected to refinance more than 500 billion yuan ($78.65 billion) of such loans next Monday.

Of the remaining 14 respondents, 11 foresee a five basis point (BP) reduction in the MLF rate, while the remaining three foresee a deeper cut of 10 basis points.

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Growing concerns over potential defaults by property developers and the recent rapid spread of the Omicron variant of the coronavirus across the country have added to more uncertainties and raised market expectations for further monetary stimulus.

“In particular, we view January as a key time for the PBOC to further cut key rates (MLF, LPR, etc.) so that action can take effect before Chinese New Year,” Citi analysts said in a rating.

China lowered the benchmark loan prime rate (LPR) and the central bank reduced the amount of cash banks must set aside in December as the economy slowed and the outlook pointed to a tough 2022. Some analysts expect the PBOC to choose to wait before re-entering acceleration mode.

“We are still watching the effect of recent policy measures, so the chances of the PBOC adjusting interest rates again this month might not be high,” said Marco Sun, chief financial markets analyst. at MUFG Bank.

Ken Cheung, chief Asian currency strategist at Mizuho Bank, also expects the PBOC to choose not to cut the MLF rate this month and instead sees policymakers likely waiting until March to assess health. economy.

Political insiders told Reuters that the PBOC was set to unveil additional easing measures to support slowing growth, although it would likely help inject more liquidity into the economy. Read more

The MLF rate serves as a guide to the LPR, which is decided on the 20th of each month. On Monday, China is also due to release gross domestic product and main activity indicators for the fourth quarter.

($1 = 6.3570 yuan)

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Reporting by Reuters Fixed Income Team, Writing by Winni Zhou; Editing by Shri Navaratnam

Our standards: The Thomson Reuters Trust Principles.

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