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China Reduces Prime Rate for Loans to Bolster Slowing Economy

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icon 22/07/24
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China Reduces Prime Rate for Loans to Bolster Slowing Economy

On Monday, the People’s Bank of China cut its benchmark prime rates for loan further into record-low territory as recent indication of an easing economic recovery resulted in further calls for stimulus.

The PBOC cut its 1-year loan prime rate from 3.45% to 3.35%, versus expectations that it would not change the rate.

The 5-year LPR, which determines mortgage prices, was cut from 3.95% to 3.85%.

The cuts came a week after lower-than-expected GDP data for Q2 increased worries about economic growth slowing. The reading, which came after a series of lukewarm Chinese economic reports, resulted in increased calls for Beijing implementing more stimulus measures.

During last week’s Chinese Communist Party’s Third Plenum, Chinese officials also promised more stimulus. On Monday, the PBOC reduced its 7-day reverse repo rate from 1.8% to 1.7%, further easing monetary conditions in China.

The PBOC determines the LPR based on considerations from 18 designated commercial banks and uses it as a benchmark for the country’s lending rates.

The 5-year rate is specifically tied to the property market closely, which has been battling with a lengthy downturn during the past 4 years. The 1-year rate is used to determine most outstanding and new loans.

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