China cuts interest rate slightly in latest fine-tuning of economic stimulus
- The People’s Bank of China cut its one-year and five-year Loan Prime Rate by 5 basis points on Wednesday, as expected
- China’s central bank ordered state-owned banks to use the new rate to lower lending costs to help shore up the slowing economy
China on Wednesday made a slight cut to a key interest rate, the latest in a series of small, incremental steps to loosen monetary policy and support economic growth.
Beijing has so far avoided large policy measures to counter an ongoing economic slowdown, but has instead taken a series of small steps to fine-tune policy, indicating it believes growth could bottom out next year.
The People’s Bank of China (PBOC), the country’s central bank, cut its one-year Loan Prime Rate (LPR) by 5 basis points on Wednesday and ordered state-owned lenders to align their loan rates to that benchmark, a move that was widely expected. The November loan prime rate, the average of the rate that 18 selected commercial banks charge their best customers, was set at 4.15 per cent for one-year maturities, down from 4.20 per cent a month earlier, the PBOC said.
The five-year prime rate, generally used as a reference rate for new mortgage loans, was lowered by 5 basis points to 4.80 per cent, the first time the rate on this maturity has been cut since the new LPR regime was introduced in August.
The cut in the LPR was a direct result of the central bank lowering the rates that banks have to pay to borrow money. The PBOC cut the rate on its one-year medium-term lending facility, (MLF), which is uses to provide funding to banks to lower cost, by 5 basis points in early November as well as cutting the rate on its 7-day reserve repo, which it uses to add liquidity to the banking system, by 5 basis points on Monday.