China reduced its benchmark lending rates by 25 basis points on Monday as the economic growth slowed further amid persistent deflationary pressures.
The People’s Bank of China cut its one-year loan prime rate to 3.10 percent from 3.35 percent. Likewise, the five-year LPR, the benchmark for mortgage rates, was lowered to 3.60 percent from 3.85 percent.
The bank had previously lowered the rates by 10 basis points in July.
The announcement was widely expected as PBoC Governor Pan Gongsheng last week said the bank will cut the LPR by 0.2-0.25 percentage points today.
The governor also said that the bank could further cut the reserve requirement ratio by 0.2-0.5 percentage points at appropriate time depending on the market liquidity before the year-end.
The PBoC fixes the LPR monthly based on the submission of 18 designated banks. However, Beijing has influence over the fixing. The LPR replaced the traditional benchmark lending rate in August 2019.
The reduction in the LPR will lower interest payments of existing loans, taking some pressure off indebted firms, Capital Economics’ economist Zichun Huang said.
Data released last week showed that the second-largest economy expanded at the slowest pace in more than a year with property market continuing to be the biggest drag on growth. GDP growth eased to 4.6 percent in the third quarter from 4.7 percent in the preceding period. Beijing aims to achieve around 5 percent growth this year.
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