June 19, 2020 / 9:43 AM / 19 days ago

China seen keeping lending benchmark rate steady in June: Reuters poll

SHANGHAI (Reuters) - China is expected to keep its benchmark lending rate unchanged for the second straight month at its June fixing on Monday, a Reuters survey of traders and analysts found, after the central bank kept the borrowing cost of medium-term loans steady this week.

More easing is still widely expected in coming months, however, after China’s cabinet indicated this week that the government will keep liquidity ample by cutting banks’ required reserve ratio (RRR) while guiding market interest rates lower to boost the coronavirus-hit economy.

Twenty-six respondents, or 74% all participants in the snap survey conducted this week, predicted no change to the one-year Loan Prime Rate (LPR) CNYLPR1Y=CFXS on Monday.

But another 20% expected a marginal reduction of five basis points (bps) in the one-year LPR, though they saw no change in the five-year tenor CNYLPR5Y=CFXS.

One-year LPR now stands at 3.85% after two cuts this year, while the five-year rate is at 4.65%.

The PBOC rolled over some maturing medium-term loans this week while keeping interest rates unchanged for the second straight month in a row.

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

The interest rate on one-year medium-term lending facility (MLF) loans to financial institutions CNMLF1YRRP=PBOC stands at 2.95%.

May data pointed to further improvement in the Chinese economy from the health crisis, but growth was weaker than expected and uneven, suggesting the recovery remains fragile and reinforcing expectations that more growth-boosting measures will be needed.

Some market participants said the divided market view on Monday’s LPR emerged after the PBOC Governor Yi Gang told a financial forum in Shanghai on Thursday that the authorities will need to consider withdrawing liquidity support at some point.

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 35 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 Kim Coghill

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