China cuts key 1-year loan prime rate to 3.45% to stimulate economy

SINGAPORE (ICIS)-China’s central bank on Monday cut one of its key interest rates for the second time in three months to rev up flagging activities the world’s second-biggest economy, but the reduction was below market expectations.

The People’s Bank of China (PBOC) lowered its one-year loan prime rate (LPR) – which is used to peg majority of the country’s business and household loans – to 3.45% from 3.55%, while the five-year LPR was maintained at 4.20%.

The last time the central bank lowered its one-year rate was in June this year.

“The [PBoC’s] move is largely disappointing considering the mounting growth risks in China’s economy,” Singapore-based UOB Global Economics & Markets Research said in a note.

“The five-year LPR is particularly important as it determines the home mortgage rates,” it said.

“With the crisis in China’s real estate market, there have been calls for stronger measures to boost the property demand as well as increasing financing support to the property developers to prevent massive defaults,” UOB stated.

On 15 August, the PBoC surprised markets with a 15-bps interest rate cut on Chinese yuan (CNY) 401bn ($55bn) worth of one-year medium-term lending facility (MLF) to 2.5%.

($1 = CNY7.28)