China Slashes Key Lending Rates to Bolster Economy

To stimulate economic growth, China has reduced key lending rates in line with previously announced monetary easing measures. The one-year benchmark lending rate (LPR) has been lowered by 25 basis points, from 3.35% to 3.10%. Similarly, the five-year LPR, which influences mortgage pricing, has also been reduced by 25 basis points, from 3.85% to 3.60%.

This adjustment marks the first change in these loan rates since July. These rates are significant because the majority of new and existing loans in China are indexed to the one-year LPR, while the five-year rate serves as a reference for home loans.

The decision to cut rates was previously hinted at by the People's Bank of China (PBOC) Governor Pan Gongsheng, who, during a financial forum last week, indicated a reduction of 20 to 25 basis points would occur. The rate cuts follow a broader stimulus package by the PBOC, which included a 50 basis point reduction in banks' reserve requirement ratio and a 20 basis point cut in the seven-day reverse repo rate, both announced on September 24. Additionally, the medium-term lending facility rate was cut by 30 basis points last month.

These measures are part of efforts to support the Chinese economy, which faces challenges such as a slowing real estate sector and the need to boost consumer spending. The government is actively taking steps through these monetary policy adjustments to provide relief and promote economic stability.