Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

China cuts new benchmark lending rate to lower costs, shore up economy

Published 11/19/2019, 09:58 PM
Updated 11/19/2019, 09:58 PM
© Reuters. FILE PHOTO: Illustration photo of a China yuan note

© Reuters. FILE PHOTO: Illustration photo of a China yuan note

By Winni Zhou and John Ruwitch

SHANGHAI (Reuters) - China cut its new benchmark lending rate on Wednesday, as widely expected, moving to drive down funding costs and shore up an economy hurt by slowing demand and trade tariffs.

The one-year loan prime rate (LPR) was lowered by five basis points to 4.15% from 4.20% at the previous monthly fixing. The five-year LPR was also lowered by the same margin to 4.80% from 4.85%.

The LPR cut is the latest in a series of creeping reductions in interest rates as China tries to push commercial banks to lend more to small and medium businesses hurting from a slowing economy.

All 64 respondents in a Reuters snap survey on Tuesday expected a reduction in the one-year LPR. Thirty-seven respondents also expected another cut in the five-year LPR.

Yan Se, chief economist at Founder Securities in Beijing, said the reduction in the one-year LPR was reflecting similar cuts in the other two interbank rates earlier this month, underlining the central bank's aim to lower borrowing costs to bolster activity in the broader economy.

The People's Bank of China (PBOC) unexpectedly trimmed a closely watched lending rate on Monday, the first such cut in more than four years following a cut in the medium-term lending facility (MLF) just two weeks ago, a signal to markets that policymakers are ready to act to prop up slowing growth.

The one-year LPR has been lowered three times since it became the official lending benchmark in August and this week's rate cuts suggest the central bank is keen to push ahead with lowering costs across the curve despite pressures on inflation from rising pork prices from an outbreak of African Swine Fever.

"With the prop from recent monetary easing likely to be underwhelming and headwinds to economic growth mounting, we think the PBOC will start to cut rates more aggressively in the coming months," Martin Lynge Rasmussen, China economist at Capital Economics, said in a research note.

The five-year LPR was also cut for the first time since its debut in August. It is a gauge the market uses to price housing mortgages.

Tommy Xie, head of Greater China research at OCBC Bank, said the cut was a reflection of the overall easing environment in China.

Xie said it was "buying more time for the manufacturing sector to stabilize and infrastructure sector to catch up," adding it was "still a balancing act, but I doubt it means a shift in housing policies".

Some analysts had noted that wording on property policy in the PBOC's third quarter monetary policy statement was slightly changed from past reports, fuelling speculation there could be a marginal easing in the sector.

The central bank removed the line saying "housing is for living in, not for speculation" but kept "the property sector should not be used as a short-term stimulus for the economy", which appeared in its second quarter report.

© Reuters. FILE PHOTO: Illustration photo of a China yuan note

The LPR is a lending reference rate set monthly by 18 banks. The People's Bank of China revamped the mechanism to price LPR in August, loosely pegging it to the medium-term lending facility rate.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.