China cuts benchmark loan prime rates by 25 bps; one-year LPR stands at 3.10%, five-year at 3.60%

China cut its benchmark lending rates at the monthly fixing on Monday, in line with the expectations. The one-year loan prime rate (LPR) was reduced by 25 basis points (bps) to 3.10% from 3.35%, while the five-year LPR was also cut by 25 bps to 3.60% from 3.85% previously.

The lending rate cut comes after reductions to other policy rates last month as part of a stimulus package to pump-prime the economy, Reuters reported. The People’s Bank of China (PBOC) last cut both rates in July and are sitting at historic lows.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.

Last week, PBOC Governor Pan Gongsheng told a financial forum that lending rates would decrease by 20 to 25 basis points on October 21.

China Stimulus Measures

The PBOC last month began the most aggressive stimulus measures since the pandemic, including measures to support the ailing property sector and boost consumption. On September 24, the banks’ reserve requirement ratio was cut by 50 basis points and the benchmark seven-day reverse repo rate by 20 basis points.

It also cut the medium-term lending facility rate by 30 basis points last month.

China’s stock market has rallied since the announcement of stimulus measures. The CSI300 Index has broken records for daily moves and is up more than 14% overall since the September 24 measures, Reuters reported. The yuan is down 1% against the dollar in that period.

On Friday, data showed China’s economic growth was slightly better than expected in the third quarter, although property investment fell more than 10% in the first nine months of the year. Retail sales and industrial production picked up in September, Reuters reported.

Chinese officials expressed confidence the economy can achieve the government's full year growth target of around 5%, and flagged another cut to banks' reserve ratio by the year-end.

(With inputs from Reuters)