China is expected to keep its medium-term interest rate steady despite increasing economic pessimism.

Despite increasing economic pessimism, China is expected to keep its medium-term interest rate steady.

The People's Bank of China is widely expected to pause its monetary easing efforts this month.

The People's Bank of China (PBOC) is widely expected to pause its monetary easing efforts and keep the medium-term policy rate steady this month, according to a Reuters survey. This is due to the widening policy divergence with the Federal Reserve, which could put further pressure on the Chinese yuan and risk capital outflows.

In a poll of 28 market watchers this week, 27 respondents forecast the interest rate on the one-year medium-term lending facility (MLF) would stay unchanged at 2.75% on Thursday. Among them, 17 expected the PBOC to partially renew the maturing loans, while the other 10 projected a full rollover.

This is due to the widening policy divergence with the Federal Reserve, which could put further pressure on the Chinese yuan and risk capital outflows.

The PBOC has been under pressure to support growth as data since its last interest rate cut in August has pointed to a further loss of momentum in the Chinese economy due to growing lockdowns weighing heavily on spending and confidence, and the property market mired in a deep slump. However, analysts say authorities are unlikely to ease policy aggressively given the risk of exacerbating already high levels of debt and stoking inflationary pressures.

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Data since the PBOC's last interest rate cut in August has pointed to a further loss of momentum in the Chinese economy.

This is due to growing lockdowns weighing heavily on spending and confidence, and the property market mired in a deep slump.

The data since the PBOC's last interest rate cut in August has pointed to a further loss of momentum in the Chinese economy. This is due to growing lockdowns weighing heavily on spending and confidence, as well as the property market mired in a deep slump.

In October, retail sales growth unexpectedly cooled to its weakest pace since 2003, while industrial output also missed expectations. The property market has been a drag on the economy for more than two years now, with prices falling for 17 straight months in September.

Investment growth has also slowed sharply this year, weighed down by weak real estate activity and softer demand from manufacturers.

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However, the policy divergence with most other major economies has pressured the yuan, which has fallen more than 3% against the dollar since mid-August.

In a poll of 28 market watchers this week, 27 respondents forecast the interest rate on the one-year medium-term lending facility (MLF) would stay unchanged at 2.75% on Thursday.

Among them, 17 expected the PBOC to partially renew the maturing loans, while the other 10 projected a full rollover.

The central bank has injected 1.2 trillion yuan ($174 billion) into the banking system via MLF operations since August 19, when it cut interest rates for the first time in more than three years.

Some analysts say that while authorities may hold off from further easing in the near term, they still expect some liquidity injection later this year due to heavy MLF maturity.

"The central bank will probably refrain from cutting rates or reserve requirement ratios (RRRs) in the fourth quarter as it assesses how effective recent policy measures have been," said Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong.

"But we think another round of targeted RRR cuts for small banks is likely in early 2020 as funding conditions tighten again ahead of Lunar New Year," he added.

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