China cuts benchmark lending rate LPR to stimulate economic growth
Published: Jun 20, 2023 11:34 AM
China's central bank Photo: CFP

China's central bank Photo: CFP

China on Tuesday cut the benchmark lending rate loan prime rate (LPR) in line with market expectations, ending nine months without a change.

It marked the third effort to bring down the nation's policy rates within a week, sending a signal that China is resolved to maintaining economic growth and stability, experts said.

The one-year loan prime rate (LPR) came in at 3.55 percent Tuesday, down from the previous reading of 3.65 percent, according to the National Interbank Funding Center, while the over-five-year LPR, on which many lenders base their mortgage rates, was also lowered by 10 basis points to 4.2 percent.

The Tuesday cuts were widely expected as there have been frequent interest rate cut moves by the People's Bank of China (PBC) over the previous week. And policy rates are usually adjusted in tandem.

The PBC lowered the interest rate on its one-year medium-term lending facility (MLF) loans to financial institutions from 2.75 percent to 2.65 percent last Thursday, injecting 237 billion yuan ($33.1 billion) into markets through a liquidity instrument.

Separately, the central bank cut the seven-day reverse repo rate last Tuesday from 2 percent to 1.9 percent, injecting funds into the financial system. On the same day, the PBC cut rates on its short-term standing lending facility by 10 basis points.

"This downward adjustment positively responded to the spirit of the recent State Council executive meeting. It is the first card in a package of stimulus plans, and it also means that decisive moves to lift economic activity have begun, so the rate cut carries a symbolic significance," Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, said in a note sent to the Global Times on Tuesday.

"The rates cut also has substantial significance for the reduction of medium and long-term loan costs, which means that subsequent efforts will continue to be made in reducing costs across the real economy. This is also the policy effect that should be focused on at present," Yan noted.

China is mulling relevant policies to promote a sustained recovery of its economy, according to the State Council executive meeting chaired by Premier Li Qiang on Friday. The meeting also adopted an action plan to support financing for technology-based enterprises and a draft regulation on the supervision and administration of private investment funds.

"The LPR cuts will once again send signals that China is resolved to maintain economic growth and stability, which will further shore up market expectations and confidence," according to Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co.

The move will reduce the financing costs across the real economy and spur effective financing, as well as promote the healthy development of the property market, as interest rates on existing and new mortgages will drop, Dong added.

Global Times