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China's Lending Benchmarks Likely to Remain Steady Amid Economic Recovery

According to a Reuters survey, China is anticipated to maintain its lending benchmarks during the monthly fixing on Thursday. This is due to the country's well-progressing economic recovery, as evidenced by better-than-expected first-quarter data.

China Central Bank
China Central Bank

Reduced Urgency for Monetary Easing

As stated by traders and economists, the faster-than-expected economic growth in China's first quarter has reduced the need for authorities to implement monetary easing to support the recovery.

Loan Prime Rate Calculation Process

The prime loan rate (LPR) is determined monthly after 18 designated commercial banks submit their proposed rates to the People's Bank of China (PBOC).

Poll Predicts Steady Lending Rates

Out of 30 market analysts polled, 27 foresee no change in either the one-year LPR or the five-year tenor. The remaining three respondents expect a marginal five basis-point reduction to either of these rates.

Growth Target for the Year

Citi analysts believe that the "around 5.0%" growth target for the year could be easily achievable, given the impressive first-quarter data and the low base from last year.

Central Bank Liquidity Support

The consensus of stable LPRs is supported by the central bank's efforts to provide economic liquidity. It has rolled over maturing medium-term policy loans with higher cash offerings for the fifth month on Monday while keeping interest rates unchanged as expected.

No Immediate Rate Cuts Expected

Lin Li, head of global markets research for Asia at MUFG Bank, does not anticipate any near-term cuts to the one-year medium-term lending facility (MLF) or one-year LPR, as China is still in its recovery phase and the U.S. Federal Reserve has not yet concluded its interest rate hiking cycle.

Potential Impact of Monetary Easing

With the Fed expected to raise its policy rate again in May, monetary easing in China could further widen the yield differentials between the world's two largest economies, potentially harming the yuan and risking capital outflows.