China set to keep rates steady for eighth month, some traders wager on Q1 easing

SHANGHAI, Jan 19 (Reuters) – China is expected to leave benchmark lending rates unchanged for an eighth straight month in January, a Reuters survey showed, but some traders are betting on a policy ‍rate cut in the first half to underpin an economy struggling to fire on all engines.

China’s central bank last week announced cuts to sector-specific interest rates to provide an early boost to the economy, and signalled it has room this year for further reductions in banks’ cash reserve requirements and for broader rate cuts.

Several ‌market participants said a policy rate cut remains possible ‌in the first quarter, which would likely drag the LPR lower in tandem.

All 22 respondents in a Reuters survey said they expected the one-year and five-year loan prime rates (LPRs) to remain steady on Tuesday at 3.0% and 3.5%, respectively.

“The probability ​of a January LPR reduction is low. The latest cuts to structural tools suggest the central bank isn’t ready to move broad policy levers ‍yet,” said a trader at a bank ​in East China who declined to be named, adding that ​February “is worth watching” for a possible policy rate move.

An analyst at a Shanghai ‍private fund also flagged a first-quarter window for monetary easing, saying that if policymakers send a clearer pro-growth signal, “we can’t rule out trimming policy rates first and then guiding LPR lower.”

China’s economy grew 5.0% last year, meeting the government’s target by seizing a record share of global demand ‍for goods to offset weak domestic consumption, a strategy that blunted the impact of U.S. tariffs but is increasingly hard to sustain.

LPRs, normally charged to banks’ ‍top clients, are calculated ‍each month after 20 designated commercial banks submit proposed ​rates to the PBOC.

Most new and outstanding loans in ​China are ⁠based on the one-year LPR, while the five-year rate ‌influences the pricing of mortgages.

Domestic demand has remained sluggish at best in the past year due to low confidence amid a protracted property crisis.

China’s new home prices extended their decline in December, official data showed on Monday, underscoring persistent strains in the property sector despite repeated government pledges to stabilise it.

(Reporting by Shanghai NewsroomEditing ⁠by Shri Navaratnam)