SHANGHAI (Reuters) – China cut benchmark lending rates for corporate and household loans for the second month in a row at the January fix on Thursday, while lowering the benchmark mortgage rate for the first time in nearly two years.
The one-year loan prime rate was reduced by 10 basis points to 3.70% from 3.80% and the five-year prime rate was reduced by 5 basis points to 4.60% from 4.65%.
The reduction to the five-year LPR was the first reduction since April 2020.
The LPR cuts were well expected after official comments calling for more monetary easing to support the broad economy.
All 43 respondents to a Reuters poll predicted a one-year reduction in LPR for the second month in a row. Among them, 40 participants also expected a five-year decrease in LPR.
People’s Bank of China Vice Governor Liu Guoqiang said Tuesday that China’s central bank “must speed up, keep our operations looking forward, move ahead on the market curve, and respond to the general market concerns in a timely manner.” Market expectations for more stimulus to help stabilize the economy.
Liu’s comments came on the heels of an unexpected reduction in borrowing costs for medium-term loans earlier this week, after economic data for December showed further weakness in consumption and the troubled real estate sector, both key drivers of growth.
The interest rates on the Medium Term Lending Facility (MLF) have become a guideline for the interest rate on loans. Market participants believe that moves to LPR should mimic adjustments to MLF rates.
Most of the new and outstanding loans in China are based on the one-year LPR. The five-year rate affects the pricing of mortgages.
(Reporting by Winnie Zoe and Andrew Galbraith; Editing by Muralikumar Anantharaman and Christopher Cushing)