SHANGHAI (Reuters) -China is expected to keep benchmark lending rates steady for the fifth consecutive month in October on Monday, a Reuters survey showed, as policymakers remain cautious despite a recent flare-up in trade tensions between Beijing and Washington.
The world’s two largest economies have once imposed tit-for-tat measures amid an intensifying trade dispute. China last week announced it would increase rare earth export controls, prompting U.S. President Donald Trump to threaten additional 100% tariffs on Chinese goods.
Market watchers expect China’s monetary policy trajectory to hinge on further developments around trade relations with the U.S. and their implications for the domestic economy.
The loan prime rate (LPR), normally charged to banks’ best clients, is calculated each month after 20 designated commercial banks submit propose rates to the People’s Bank of China (PBOC).
In a Reuters survey of 27 market watchers this week, all respondents expected both the one-year and five-year LPRs to remain steady on Monday at 3.00% and 3.5%, respectively.
The strong consensus of steady LPRs also comes as the PBOC has kept its seven-day reverse repo rate, which now serves as a main policy rate, unchanged since the U.S. Federal Reserve’s resumption of monetary easing last month.
“No change is expected after the PBOC stood pat,” Lynn Song, chief economist for Greater China at ING, said in a note.
Separately, some traders said they do not expect any rate changes before China releases its third-quarter gross domestic product (GDP) and other activity indicators on Monday, but remain hopeful for monetary easing later this year.
“Monetary policy will be kept accommodative amid the renewed uncertainties from the U.S.-China trade war,” Ho Woei Chen, economist at UOB said.
“The PBOC will maintain ample domestic liquidity to support government bond issuances and amid flows to the equities. We see the resumption of U.S. Fed rate cuts and persistent domestic deflationary pressure creating the room for the PBOC to cut its interest rate again in the current quarter.”
She maintained her forecast for a 10-basis-point rate reduction and sees prospects of a further 50-basis-point cut to the reserve requirement ratio (RRR).
A Reuters poll showed that China’s economy likely grew at its weakest pace in a year in the third quarter, with the slowdown set to deepen and threaten the official growth target, raising pressure for fresh stimulus as a trade war with the U.S. saps confidence.
(Reporting by Shanghai NewsroomEditing by Shri Navaratnam)
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