China slashes key lending rates to bolster ailing economy
The bigger-than-expected rate cuts are aimed at reviving economic growth and halting a housing market crash.
BEIJING – China cut its benchmark lending rates after the central bank lowered key interest rates at the end of September as part of a series of measures aimed at reviving economic growth and halting a housing market crash.
The one-year loan prime rate (LPR) was cut to 3.1 per cent from 3.35 per cent, while the five-year LPR was reduced to 3.6 per cent from 3.85 per cent.
Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages and other long-term loans.
The size of the cut is at the upper bound of the 20 to 25 basis points range forecast by People’s Bank of China (PBOC) governor Pan Gongsheng in speeches since late September, and bigger than the 20 basis point reduction projected by all 17 economists surveyed by Bloomberg.
The cuts to the LPR – which is set by a group of big Chinese banks – come after the PBOC outlined steps last month to encourage households and companies to borrow money. The measures include lowering interest rates and unlocking liquidity to encourage bank lending.
“The larger cuts confirm the PBOC’s stance of easing monetary policy more quickly, and echo the Politburo’s statement of cutting rates more forcefully,” said Ms Becky Liu, head of China macro strategy at Standard Chartered.
China’s top leaders in a September Politburo meeting called for substantial cuts to the interest rates and measures to stop the property market from declining further, their strongest vow yet to stabilise the crucial industry.
The larger-than-expected LPR cuts are meant to contribute to the stabilisation of the property market, according to Mr Bruce Pang, chief economist for Greater China at Jones Lang LaSalle.
The PBOC has signalled more easing is on the cards. Mr Pan reiterated on Oct 18 that the central bank may lower the reserve requirement ratio – which frees up cash for banks to lend – by another 25 to 50 basis points by the end of 2024 based on the liquidity situation.
As for interest rates, many expect the PBOC to only reduce them again in 2025 after the recent outsized cuts.
However, if there are “major negative shocks to growth and financial markets, then the PBOC could be more aggressive in its easing to counter such shocks”, said Ms Zhi Xiaojia, head of research at Credit Agricole CIB.
China’s largest state-owned lenders cut their deposit rates last week, a step to offset the effects of lower loan rates on their narrowing profit margins. BLOOMBERG
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