China likely to lower benchmark lending rates after RRR cut

Benchmark lending rates for China's commercial banks are likely to be lowered at a monthly fixing on Wednesday, a Reuters survey showed.

Reuters cites Beijing cautiously easing monetary conditions to aid an economy hit by coronavirus lockdowns in several cities.

''The loan prime rate (LPR), which banks normally charges their best clients, is set on the 20th of each month, when 18 designated commercial banks submit their proposed rates to the People's Bank of China.''

''A vast majority of the 28 traders and analysts surveyed in a snap Reuters poll on Tuesday expect a reduction this month.''

''Among them, 11, or 39% of all respondents, predicted a marginal cut of 5 basis points (bps) to both the one-year loan prime rate (LPR) and the five-year rate on Wednesday. Another six participants also expect a reduction to either rates within a range of 5 to 10 bps.''

''The remaining 11 respondents expected both rates to remain unchanged this month.''

''Most new and outstanding loans in China are based on the one-year LPR, which currently stands at 3.7%. The five-year rate, which influences the pricing of home mortgages, is 4.6%.''

Market implications

Investors are awaiting the decision today that comes at the top of the hour.  China last lowered the LPR in January and has held the rates steady in the following two months. Further easing could be seen as bullish for the commodity sector and the Aussie that trades as a proxy. 

However, expectations for imminent monetary easing were heightened last week when the People's Bank of China (PBOC) cut the amount of cash banks must hold in reserves, so it will come as no surprise and moves would be expected to be minimal.