China Lowers Benchmark Lending Rates

By Samuel Shen and Vidya Ranganathan

SHANGHAI/SINGAPORE (Reuters) – China cut benchmark lending rates as expected at the monthly fixing on Monday. This follows reductions to other policy rates last month as part of stimulus measures aimed at reviving the economy.

The one-year loan prime rate (LPR) was lowered by 25 basis points to 3.10% from 3.35%, while the five-year LPR was also cut by 25 basis points to 3.6% from 3.85%.

The last lending rate cuts occurred in July. People's Bank of China (PBOC) Governor Pan Gongsheng indicated at a financial forum that lending rates would decrease by 20 to 25 basis points on October 21.

On September 24, the PBOC announced cuts to banks' reserve requirement ratio by 50 basis points and a 20 basis point reduction in the benchmark seven-day reverse repo rate, initiating the most aggressive stimulus since the pandemic. This includes measures to support the struggling property sector and boost consumption. The medium-term lending facility rate was also cut by 30 basis points last month.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences mortgage pricing.

Since the September 24 measures, the CSI300 Index has reached record daily fluctuations and is up over 14% overall. However, the yuan has depreciated by 1% against the dollar during this period.

Although stocks have been volatile recently, initial enthusiasm has been tempered by concerns about the sufficiency of policy support to revive growth. Recent data showed China's economic growth was slightly better than expected in the third quarter, although property investment dropped more than 10% in the first nine months of the year. Retail sales and industrial production did see a pickup in September.

Officials expressed confidence that the economy could meet the government's full-year growth target of around 5%, and indicated a further cut to banks' reserve ratio might occur by year-end.

Chris Weston, head of research at Australian online broker Pepperstone, remarked that the actual influence of further easing on the China and Hong Kong equity markets, as well as the CNH, remains in question, especially as market participants may be experiencing fatigue concerning policy easing.