China cuts loan benchmark LPR for first time since April 2020
Adds details and analyst comments
SHANGHAI, December 20 (Reuters) – China on Monday lowered its benchmark prime lending rate (LPR) for the first time in 20 months, in line with market expectations, in a bid to support a slowing economy.
The one-year LPR CNYLPR1Y=CFXS was lowered by 5 basis points to 3.80% from 3.85% previously, while the five-year LPR CNYLPR5Y=CFXS remained at 4.65%.
This reduction marks the first LPR reduction since April 2020.
Twenty-nine of 40 traders and economists polled by Reuters last week predicted LPR cuts.
Some analysts attributed the lower year-on-year LPR to lower funding costs for banks following two reserve requirement ratio (RRR) cuts by the central bank this year.
The People’s Bank of China (PBOC) reduced the amount of cash banks must hold in reserve last week, its second such measure this year, freeing up 1.2 trillion yuan of long-term liquidity to support the slowing Economic Growth.
While Beijing’s decision to lower the LPR was widely expected, it also highlights China’s monetary policy divergence from other major global central banks, which are expected to raise interest rates.
Some analysts expect Beijing may ease further to halt the economic downturn.
A slew of recent economic indicators, including retail sales and investment growth, point to a slowing economy, while a regulatory crackdown on the tech sector has dampened investor sentiment, and new Brakes to combat rising COVID-19 cases could put pressure on growth.
“We expect a further 45bp reduction in the one-year LPR in 2022,” Mark Williams, chief Asia economist at Capital Economics, said in a note.
“Equally important is what happens to quantitative controls on credit, including on local government borrowing. Early signs indicate they will be eased, but not by much. The general impression, including from the today’s announcement, is that the policy is being relaxed but not dramatically.”
Most new and existing loans in China are based on the one-year LPR. The five-year rate influences mortgage pricing.
(Reporting by Winni Zhou and Andrew Galbraith; Editing by Muralikumar Anantharaman and Sam Holmes)
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