China's central bank is likely to keep its medium-term policy rate unchanged when rolling over such maturing loans on Monday, despite a slew of recent data pointing to faltering economic recovery, a Reuters survey showed.

In a poll of 30 market watchers conducted this week, 26 participants, or 86.7%, predicted the People's Bank of China (PBOC) would keep the interest rate on the one-year medium-term lending facility (MLF) unchanged at 2.75%.

Of the remaining four respondents, three forecast a 5-basis-point interest rate cut and one forecast a 10 basis point cut when the 100 billion yuan ($14.5 billion) worth of maturing MLF loans is rolled over.

"We still see no policy rate cut in 2023, while previous reserve requirement ratio (RRR) cuts and lowering of banks' deposit rate may lead to a small loan prime rate (LPR) cut by 10 bp later," said Wang Tao, head of Asia economics and chief China economist at UBS.

Wang added that she expected credit demand to recover this year despite a slump in bank lending in April.

But with regulators guiding banks' deposit rates lower at the same time the Federal Reserve has signalled a potential pause in its tightening cycle, some analysts and traders believe lending rates will inevitably decline in coming months.

"We now expect a reduction of 20 basis points to the MLF rate in the rest of this year, Citi's proxy of policy rate," Citi analysts said in a note.

"The first cut could kick in as soon as late 23Q2. Interest rate realignment would then lead to a downward revision to LPR by the same size – perhaps more for 5-year LPR if the property momentum softens more than expected."

The PBOC last cut the MLF rate in August 2022 in a bid to revive credit demand to support the COVID-hit economy.

The MLF rate serves as a guide to the benchmark LPR, and markets usually use the medium-term rate as a precursor to any changes to the lending benchmarks. The monthly fixing of LPR will be announced on May 22. ($1 = 6.9121 Chinese yuan renminbi) (Reporting by Steven Bian and Winni Zhou in Shanghai, Tom Westbrook in Singapore; Editing by Lincoln Feast.)