CBP Photo: Xinhua
China’s central bank moved to lower the benchmark lending prime rate (LPR) for the first time in 20 months, following a 50 basis point universal cut in the reserve requirement ratio (RRR) on 15 December, in accordance with the policy directive issued by the Central Economic Work Conference to accelerate economic growth in 2022.
The one-year LPR was pegged at 3.8% from 3.85% over the past 20 months, while the five-year LPR remains unchanged at 4.65%, according to a statement issued Monday by the Banque Populaire de China.
The central bank’s decision to cut the LPR will reduce the cost of financing for Chinese companies to better boost their vitality and avoid downward economic pressure at the end of 2021, analysts said.
China kept the LPR unchanged for 20 months. The last time the country adjusted the LPR was in April 2020, when the one-year LPR was reduced from 4.05% to 3.85%.
The LPR is a lending reference rate announced monthly by the central bank, taking into account 18 commercial lenders who submit a monthly quotation by adding a premium to the rate of the medium-term lending facility. It is also considered the de facto benchmark rate for lending by Chinese banks.
Sinolink Securities said the decision was mostly in line with market expectations, which is expected to cut costs for Chinese companies by 16.5 billion yuan ($2.59 billion).
“Reducing the LPR will reduce the overall cost of financing for companies and promote better macroeconomic development,” Yan Yuejin, research director at the Shanghai-based E-house China R&D Institute, told the Global Times on Monday.
Yan noted that the one-year LPR reduction could have a positive impact on the consumer market by encouraging consumers to buy more. The five-year LPR will remain unchanged as policymakers seek to control housing bubbles and inflationary pressures.
Although the reduction will not have a direct impact on real estate, the scale of funds loanable by banks will increase, which could lead to a downward adjustment in mortgage rates, particularly in the second quarter of the year. next year, Yan said.
He said the property market could gradually rebound thanks to a number of supportive government policies, after authorities decided this year to step up scrutiny of unruly property developers.