On Monday, the People’s Bank of China (PBOC) made a modest but somewhat larger than expected reduction to its benchmark lending rates as part of ongoing efforts to boost the country’s economic growth.
The PBOC lowered the one year Loan Prime Rate (LPR) from 3.35% to 3.10%, slightly exceeding predictions that it would be reduced to 3.15%. The five year LPR, which influences mortgage rates, was cut to 3.60%, surpassing expectations for a reduction to 3.65%. The last time rates were adjusted was in July.
The LPR is set by the PBOC in collaboration with 18 designated commercial banks and serves as a key reference for lending rates across the nation.
This rate cut, though anticipated by many analysts, is part of a broader range of actions from Beijing aimed at stimulating economic activity. Over the past month, Chinese authorities have introduced several fiscal and monetary policies designed to support infrastructure projects, stabilize the struggling property market, and ensure the economy stays on course to meet the government’s 5% annual growth target.
While Beijing has rolled out some of its most targeted economic measures to date, investor sentiment remains cautious due to a lack of clarity regarding the scale and timeline of the initiatives. Despite frequent reductions in the LPR over the past two years, the impact on China’s ongoing deflationary pressure has been limited, with recent economic data from September indicating only minimal improvement.
