Borrowing costs

China sees easing in medium-term borrowing costs as COVID risks rise

SHANGHAI, March 14 (Reuters) – China’s central bank is expected to roll over maturing medium-term political loans and cut borrowing costs for the second time this year, a Reuters poll showed on Monday, as a fresh wave of coronavirus infections weighs on the wider economy.

Twenty-nine of 49 traders and analysts, or 59% of all participants, predicted an interest rate cut on the one-year medium-term loan facility (MLF) when the central bank prepares to renew 100 billion yuan ($15.75). billion) of these loans on Tuesday.

Among them, 22 expected a 10 basis point cut in the MLF rate, while the other seven participants expected a marginal cut of 5 basis points.

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Of the remaining 20 respondents, 13 believe the People’s Bank of China (PBOC) will inject additional liquidity into the banking system beyond the maturing 100 billion yuan.

“The worsening of COVID may prompt Beijing to step up easing measures,” Lu Ting, chief China economist at Nomura, said in a note.

“We think the likelihood that the PBOC will cut the 1-year MLF rate and the 7-day repo rate (open market operation) on March 15 is reasonably high, but the size could again be around 10 basis points. base,” he said.

Lu also expects the PBOC to cut the amount of cash banks need to set aside by 50 basis points in the coming months, which would be the second easing after the central bank cut the MLF rate to one year by 10 basis points to 2.85% in January. Read more

Former PBOC adviser Yu Yongding expects China to cut interest rates further to stabilize the economy, media reported on Monday. Read more

China is experiencing a resurgence of COVID, with the country reporting its highest daily local symptomatic cases in two years over the weekend.

The rise in cases could complicate Beijing’s “dynamic demining” ambition to suppress the contagion as quickly as possible. Read more

Some analysts said slowing economic conditions even before the spike in new COVID-19 cases suggested a strong case for additional stimulus. Read more

“After February’s weak overall funding and money supply data, expectations of an imminent interest rate cut have built up,” said Frances Cheung, rates strategist at OCBC Bank.

Any adjustment to the MLF rate could pave the way for similar cuts in the country’s benchmark lending prime rate (LPR), which is due next Monday.

($1 = 6.3512 Chinese Yuan)

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Reporting by Steven Bian and Andrew Galbraith, writing by Winni Zhou; Editing by Sam Holmes

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