China To Maintain Lending Criteria As Economy Stabilizes

Based on a poll, China is largely likely to maintain lending criteria at the monthly fix on Thursday, since the economy is on track, as seen by better-than-expected first-quarter data.

According to traders and experts, China's economy grew faster than expected in the first quarter, lowering the pressure for authorities to loosen monetary policy to boost recovery.

The loan prime rate (LPR), which banks generally charge their best clients, is calculated each month after the People's Bank of China (PBOC) receives proposed rates from 18 approved commercial banks.

In a survey of 30 market participants, 27 expected no change in the one-year LPR or the five-year tenor.

The remaining three respondents anticipate a 5 basis-point cut in either the one-year or two-year rates.

"With a better-than-expected (data) reading in Q1 and a low base from last year in the coming quarters, the 'around 5.0 percent' growth target for this year could be low-hanging fruit," Citi analysts wrote in a client note.

The agreement on stable LPRs came as the central bank increased liquidity support for the economy by rolling over maturing medium-term policy loans with higher cash offerings for the fifth month on Monday, while keeping the interest rate unchanged, as generally predicted.

"We do not expect a reduction in one-year MLF or one-year LPR in the near term because China is still in a recovery phase and the US Federal Reserve has not yet ended its interest rate hiking cycle," said Lin Li, MUFG Bank's head of global markets research for Asia.

The Fed is largely expected to hike its policy rate again in May, while Chinese monetary easing might widen yield differentials between the world's two largest economies, weakening the yuan and threatening capital outflows.