CHINA - SHANGHAI. China cut its lending benchmark loan prime rate (LPR) for the first time in 20 months on Monday, matching market expectations, in a bid to prop up the slowing economy.
The one-year LPR was lowered by 5 basis points to 3.80% from 3.85% previously, while the five-year LPR remained at 4.65%.
The reduction marks the first LPR cut since April 2020.
Twenty-nine out of the 40 traders and economists polled by Reuters last week predicted cuts in LPR.
Some analysts attributed the one-year LPR reduction to lowered funding costs at banks following two reserve requirement ratio (RRR) cuts by the central bank this year.
The People's Bank of China (PBOC) cut the amount of cash that banks must hold in reserve last week, its second such move this year, releasing 1.2 trillion yuan in long-term liquidity to bolster slowing economic growth.
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While Beijing's move to lower the LPR was widely expected, it also highlight China's monetary policy divergence from other major global central banks, which are set to raise interest rates.
Some analysts expect Beijing could ease further to arrest the economic slowdown.
A slew of recent economic indicators, including retail sales and investment growth, point to a slowing economy, while a regulatory clampdown on the tech sector has dampened investor sentiment, and new curbs to fight rising COVID-19 cases could pressure growth.
"We expect a further 45 bp of cuts to the one-year LPR during 2022," Mark Williams, chief Asia economist at Capital Economics, said in a note.
"Just as important is what happens to quantitative controls on credit, including on borrowing by local governments. Early signs are these will be relaxed, but not greatly. The overall impression, including from today's announcement, is that policy is being eased but not dramatically."
Most new and outstanding loans in China are based on the one-year LPR. The five-year rate influences the pricing of mortgages.
