China saw its benchmark rate stable in August, but weak data fans curtailed talks

SHANGHAI, Aug. 19 (Reuters) – China is expected to keep its policy rate unchanged for the 16th consecutive month when it was set in August on Friday, but some traders and analysts believe a cut may be needed soon amid signs that the The country’s economic recovery is losing steam, a Reuters survey showed.

Twenty-five traders and analysts, or 78% of 32 participants, in the snapshot survey predicted no change in the prime lending rate (LPR) at one year or the five-year term.

The remaining seven participants all expected a reduction in LPR at one year, with six participants predicting a 5 basis point (bp) reduction and one participant a 10 bp decline.

None expected changes to the five-year term – which influences mortgage pricing, an area where authorities are keeping a tighter grip to curb rising home prices.

The one-year LPR is currently 3.85% and the five-year rate is 4.65%.

Official data this week showed that China’s factory production and retail sales growth slowed sharply in July as new COVID-19 outbreaks and flooding disrupted business operations, and some analysts believe that the August readings could be worse. Read more

The People’s Bank of China (PBOC) injected billions of yuan in medium-term loans into the financial system earlier this week, which many market participants interpreted as an effort to support activity, although the cost of these loans remained unchanged.

The interest rate on the Medium-Term Loan Facility (MLF), which serves as a guide for the LPR, has remained unchanged for 16 consecutive months, although the central bank has many other tools it could use to reduce. borrowing costs. It reduced bank reserve requirements (RRRs) in July, and many market watchers expect another such reduction in the coming months.

Policy insiders told Reuters earlier in August that China was set to step up spending on infrastructure projects while the central bank supported the economy in other ways.

However, some survey participants believe there is an urgent need to roll out more easing measures, such as lowering rates, to reduce the risk of a deeper economic slowdown in the coming months.

Liu Li-Gang, chief China economist at Citi, said the central bank would likely offer easing signals, but would be cautious about taking action for the rest of the year.

“Speaking of monetary policy signals, followed by a general reduction in the reserve requirement ratio (RRR), another cut in interest rates could mean aggressive easing, which is not in line with the recent statement by the central bank to maintain a prudent monetary policy, ”Liu said.

“From a market perspective, recent economic data has been weaker than expected. But compared to the government’s annual GDP target of 6% or more, the economy has remained within a normal operating range. An annual growth of 8% (rate) is well above the target. It’s a mismatch between expectations, and there is no risk that (the recovery) will derail. “

Liu didn’t see a big chance of a drop in the MLF rate or the LPR this year.

The LPR is a benchmark loan rate set monthly by 18 banks.

The 32 survey responses were collected from selected participants on a private messaging platform.

Reporting by Reuters Bond Team, written by Winni Zhou; Editing by Kim Coghill

Our Standards: Thomson Reuters Trust Principles.