China's Central Bank Cuts Loan Rates in Bid to Stimulate Economy

BEIJING (Sputnik) - The People's Bank of China, the national central bank, said on Monday that it trimmed the loan prime rates, key benchmarks for the costs of loans and mortgages, in a bid to boost the economy.

The one-year LPR, the reference rate for interests for new and outstanding loans, became the new lending benchmark in August 2019. The rate remained unchanged at 3.85% from April 2020 to December 2021, but was cut to 3.8% at the end of last year, following another reduction to 3.7% this January.

On Monday, more than half a year after the January cut, the rate was down five basis points, now standing at 3.65%, while experts expected an even greater reduction, to 3.6%.

The five-year LPR, which influences the interest rate for mortgages, was lowered from 4.45% in July to 4.3%, a greater reduction than expected.

China's central bank announced a key interest rate reform in late August 2019 to help reduce companies' borrowing costs and boost the economy. As part of the reform, the regulator changed the benchmark rate for loans issued by banks, switching it from its own bank lending rate to the LPR.

The LPR is based on the interest rates that 18 designated Chinese banks offer to their customers. The banks should submit their proposed rates to the National Interbank Funding Center, after which the central bank calculates the average.