Chinese Banks Lower Benchmark Lending Rates After Easing by PBOC

Chinese banks lowered their benchmark lending rates for the first time in seven months, in a move telegraphed by officials when they eased monetary policy to counter US tariffs.

 

The one-year loan prime rate was lowered to 3% from 3.1% previously, according to a statement from the People’s Bank of China on Tuesday. That’s in line with the consensus forecast for a 10-basis-point reduction by economists polled by Bloomberg.

 

The five-year rate, a reference for long-term loans including mortgages, was cut to 3.5% from 3.6%, same as expected. The LPRs were last lowered by 25 basis points in October following broad easing steps by the central bank including a rate cut.

 

The latest decision also closely tracks guidance issued by PBOC Governor Pan Gongsheng at a press briefing earlier this month, when he announced a reduction of the policy rate — the cost of seven-day funds it provides to banks — along with a cut of the reserve requirement ratio that freed up money to lend and invest.

 

The easing steps, accompanied by measures that include rate reductions on a slew of relending tools and loans for policy banks, came just days before the US and China reached a temporary agreement to reduce the tariffs they had imposed on each other since the start of April.

 

The policy rate cut was likely to result in a 10-basis-point reduction in the loan prime rate, or LPR, Pan forecast at the time.

 

The LPR is based on the interest rates that 20 banks offer their best customers. Since a revamp of the PBOC’s policy framework last year, the cost of seven-day reverse repurchase agreements has become the main policy rate as well as the main reference for LPR.

 

Even though a pause in the trade war has lifted the prospects for China’s economy this year, challenges such as deflation and weak domestic demand still cast a pall over the outlook. New loans extended in April plunged 61% from a year ago, a sign that tariffs already harmed sentiment on borrowing.