The prime rate on one-year loans stood at 3.35% this Monday, below the previous record of 3.45%, according to the National Center for Interbank Financing.
China cut its market-based lending rate on Monday, in line with market expectations, as part of measures to step up monetary support to shore up the economy.
The one-year lending prime rate (LPR) stood at 3.35%, down from the previous record of 3.45%, according to the National Interbank Financing Center.
The five-plus year LPR, on which many lenders base their mortgage rates, was reduced by 10 basis points to 3.85%.
These monthly indicators are a type of price reference for banks and are based on the open market operation rates of the People's Bank of China, the country's central bank.
The cut came in response to market expectations and is a measure that will gradually reduce financing costs for the real economy, thus encouraging borrowing and investment, according to analysts.
The reduction of the LPR to more than five years follows a series of support measures aimed at boosting the real estate sector. On May 17, China announced new policies aimed at stimulating home buying, ranging from reducing minimum down payment percentages to canceling minimum mortgage rates for first and second homes.
Analysts believe that these policy measures will help give a boost to the healthy development of the real estate sector.
Earlier on Monday, the central bank cut the seven-day reverse repo rate, a key short-term policy rate, from 1.8 percent to 1.7 percent, as efforts to strengthen adjustments countercyclical measures aimed at better supporting the real economy.
The rate adjustment came after the bank's governor, Pan Gongsheng, said last month that the central bank will continue to improve the market-oriented interest rate mechanism, with the short-term operating rate meeting the primary policy rate function.
Pan noted that the bank will further optimize the quality of LPR quotes to better reflect market interest rate levels.
ANALYST REACTIONS
In the first half of this year, the entity deployed a series of monetary policy instruments with the purpose of ensuring sufficient liquidity, reducing social financing costs and stabilizing market expectations, explained Dong Ximiao, chief researcher at Merchants Union Consumer Finance Company. Limited.
Dong hopes that the People's Bank of China will continue to guide financial institutions to increase support for key areas and weak links of the real economy, in a bid to create a suitable monetary and financial environment to drive recovery. macroeconomic and high-quality development.
In this sense, senior China analyst at Capital Economics, Julian Evans-Pritchard, has pointed out that the easing comes after last week's Third Plenary, which noted Beijing's concern about the current state of the economy and promised additional support. short term.
“It is clear that the People's Bank of China wants to be seen to be doing its part in these efforts,” says the expert, for whom it is likely that the cuts announced this Monday “will be followed by a medium-term rate cut next year.” month".
However, Evans-Pritchard believes that small cuts of this magnitude “will make little difference” to economic activity and says that if the People's Bank of China is serious about monetary stimulus, “it should cut rates much more substantially.”
