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The Chinese yuan is expected to be weighed upon by a gloomy growth outlook, according to the latest research report from Commerzbank.
After the introduction of the loan prime rate (LPR), the new benchmark lending rate, the Chinese central bank will publish a fixing rate it on 20th of every month. The LPR consists two components, namely a base rate (one-year MLF rate) and a credit premium.
The PBoC had kept the MLF rate unchanged at 3.3 percent earlier this week, which implies that if there is a reduction to LPR, the credit premium, a spread charged by commercial banks, will be lowered.
The market right now expects to see a 5-10bps cut to LPR this week, citing reasons including economic slowdown and a global easing backdrop, the report added.
"To be blunt, even if the PBoC delivers such magnitude, the market is unlikely to be satisfied as the consensus view is China's central bank has been significantly behind the curve. However, as the Chinese policy makers have somewhat turned the focus on financial stability, it is hard to see a dovish PBoC for now," Commerzbank further commented in the report.
