China cuts 5-year loan prime rate more than expected, 1-year LPR left unchanged

China cuts 5-year loan prime rate more than expected, 1-year LPR left unchanged
© Reuters. — The People’s Bank of China cut its five-year benchmark loan prime rate by a bigger-than-expected margin on Tuesday, loosening monetary conditions further in a bid to support a slowing economic recovery in the country. 

The PBOC cut its , which is used to determine mortgage rates, to 3.95% from 4.20%. Analysts had expected a cut of 10 basis points to 4.10%.

The  was left unchanged at 3.45%. 

Tuesday’s move was somewhat unexpected, after the central bank kept medium-term lending rates unchanged over the weekend. But steadily worsening economic conditions in China had seen some investors positioning for more monetary easing in the country. 

The LPR is determined by the PBOC based on considerations from 18 designated commercial banks, and is used as a benchmark for lending rates in the country.

Tuesday’s move marks the PBOC’s first rate cut since August 2023, and brings the LPR further into record-low territory. While the bank has remained largely hesitant in trimming interest rates, due to concerns over more weakness in the yuan, consistently worsening economic conditions in China appear to have now forced its hand.

The cut in the 5-year LPR also appears to be directed largely towards the struggling property market, which was battered by a slew of high-profile bankruptcies over the past two years as home sales dried up and house prices plummeted.

The Chinese economy barely grew more than targeted in 2023, and was grappling with a pronounced deflationary trend towards the end of the year. Business activity readings for January also showed little signs of improvement.

While Tuesday’s cut is expected to provide more monetary support to the economy, investors have called for more targeted, fiscal stimulus measures from Beijing in recent months, to shore up growth.

“We are cautious in our assessment of the impact of the rate cut. Outstanding mortgage rates are repriced once a year, and whether the large cut today could help restore new-homebuyers’ confidence remains to be seen,” analysts at Citi said in a note to clients.

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Nicholas ‘Nick’ Statman entered the property industry in 2001 and set up a property buying company that quickly established itself as one of the biggest in the sector. During this time the Company successfully transacted on thousands of residential properties across the UK. Nicholas Statman was an early pioneer of the ‘quick sale’ niche market which has since grown considerably with a multitude of companies now operating in the sector. Nicholas Statman has strategically built a sizeable residential and commercial property portfolio with a view to holding for optimum capital growth and a long term passive income. Nicholas Statman has been involved in almost every aspect of the property sector over a 20 year period – this includes buying and selling, development, letting and management and is now involved in the fast growing online/ hybrid Estate Agent industry.

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