China Lowers Loan Prime Rate

Business

In a bid to support the struggling economy, the People’s Bank of China lowered its benchmark rate on Tuesday after reducing other major policy rates earlier this month, while most of its global peers are still pursuing the tightening mode to keep a lid on inflation.

The central bank cut its one-year loan prime rate, or LPR, to 3.55 percent from 3.65 percent. Likewise, the five-year LPR, the benchmark for mortgage rates, was lowered to 4.20 percent from 4.30 percent.

Although Beijing has influence over the LPR, the central bank fixes it monthly based on the submission of 18 banks. The LPR replaced the traditional benchmark lending rate in August 2019.

Markets had widely expected the reduction after the bank had trimmed the one-year medium-term lending facility, or MLF, rate by 10 basis points to 2.65 percent last week. The MLF acts as a guide to the LPR.

Earlier this month, the PBoC had cut the seven-day reverse repo rate for the first time since August last year. The central bank lowered the rate to 1.90 percent from 2.0 percent.

The latest cut brings to an end this round of formal rate reductions but more will likely follow in the months ahead as the economy continues to struggle, ING economist Robert Carnell said.

Recent economic data showed that the economy is slowing down from the rebound seen at the start of the year after abandoning the zero-covid policy.

In the first quarter, the Chinese economy had expanded 4.5 percent in the first quarter after the 2.9 percent growth a quarter ago. The government targets a moderate growth of around 5.0 percent for 2023.

The International Monetary Fund forecast China GDP to grow 5.2 percent this year and 4.5 percent in 2024.

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