China Loan Prime Rate

The People's Bank of China slashed key lending rates to new record lows at the July fixing to help a fragile economic recovery. The one-year loan prime rate (LPR), the benchmark for most corporate and household loans, was cut by 10bps to 3.35%. The five-year rate, a reference for property mortgages, was also trimmed by the same margin to 3.85%. In early Monday, China's short-term interest rate, the seven-day reverse repo rate, was reduced to 1.7% from 1.8%, the first such cut in nearly a year, amid efforts to optimize open market operations and increase financial support. Bloomberg News said the seven-day rate could be the future benchmark policy rate as the PBoC recently signaled a shift toward the short-term rate to guide markets. This will reduce the importance of the existing 1-year benchmark, the medium-term lending facility rate. All of China's rate moves today followed last week's Third Plenum gathering, and weak Q2 GDP readings and mixed activity data in June.

The People's Bank of China left key lending rates unchanged at the June fixing, aligning with market expectations. The 1-year loan prime rate (LPR), the benchmark for most corporate and household loans, was maintained at 3.45%. Meanwhile, the 5-year rate, a reference for property mortgages, was retained at 3.95% following a record cut of 25bps in February. Both rates are at record lows, amid fragile economic recovery that reinforces calls for more support measures from Beijing. Earlier in the week, the PBoC held a medium-term lending rate at 2.5% for the 10th month while draining a net CNY 55 billion from the banking system to avoid excessive liquidity. Meanwhile, central bank governor Pan Gongsheng said at a forum in Shanghai that China will flexibly use various policy tools, including interest rates and RRR, and that Beijing will prevent the yuan from overshooting. He added some banks’ quotes of LPR rates significantly deviated from the actual best lending rate they offer to clients.

The People's Bank of China kept key lending rates unchanged at the May fixing, matching market expectations. The 1-year loan prime rate (LPR), the benchmark for most corporate and household loans, was maintained at 3.45%. Meanwhile, the 5-year rate, a reference for property mortgages, was retained at 3.95% following a record cut of 25bps in February. Both rates are at record lows, amid Beijing's attempts to spur an economic recovery after mixed activity data in April, as highlighted by sustained industrial output growth, the lowest jobless rate in five months, and weak retail turnover. Last week, the PBoC held a medium-term lending rate, continuing its efforts to stabilize the yuan. It also moved to lower down payments for first- and second-time home buyers and scrap a floor on mortgage rates. Separately, Beijing pledged fresh stimulus for the property sector by easing purchase rules and urging local governments to buy unsold houses from builders for conversion into affordable ones.