China reduced its benchmark lending rate for the second straight month as the economic growth weakened at the end of 2021.<\/p>\n
The one-year loan prime rate was reduced to 3.70 percent from 3.80 percent. This was the second consecutive reduction after a 5 basis point cut in December.<\/p>\n
The five-year LPR, the benchmark for mortgage rates, was lowered to 4.60 percent from 4.65 percent, which was the first cut since April 2020. <\/p>\n
Mortgages will now be slightly cheaper which should help shore up housing demand, Julian Evans-Pritchard and Sheana Yue, economists at Capital Economics, said. <\/p>\n
Economists expect additional easing to follow in the coming months, including measures to push down deposit rates. But policymakers still appear reluctant to engineer a sharp pick-up in credit growth, they added. <\/p>\n
The loan prime rate is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. This lending rate replaced the central bank’s traditional benchmark lending rate in August 2019.<\/p>\n
Early this week, the People’s Bank of China had cut the one-year medium lending facility rate to 2.85 percent from 2.95 percent and the 7-day reverse repo rate to 2.10 percent from 2.20 percent.<\/p>\n
Iris Pang, an economist at ING said all these actions are proactive to support economic growth. The question remains whether banks will respond by increasing lending<\/p>\n
The current credit environment is not improving. She said the uncertainty of credit from real estate developers has led to a general atmosphere that credit quality is worse now than in 2020. Banks will be picky about who they lend to and may require more collateral, Pang noted. <\/p>\n