China has lowered its key lending rates by 25 basis points, reducing the one-year loan prime rate (LPR) to 3.1% and the five-year LPR to 3.6%, according to the People’s Bank of China (PBOC).
The one-year rate influences corporate and household loans, while the five-year serves as a benchmark for mortgage rates.
The move was expected after central bank governor Pan Gongsheng suggested last Friday that a rate cut of 20 to 25 basis points was imminent.
He also indicated that the reserve requirement ratio (RRR) could be reduced by up to 50 basis points by the end of the year, depending on the liquidity situation.
Although the cut reflects ongoing monetary stimulus efforts, some experts argue it’s insufficient to revive the country’s sluggish economy.
AMP’s Shane Oliver noted, “The cost of money, the supply of money, is not the real issue in China. The real issue is a lack of demand, and that’s why I think fiscal stimulus is so important.”
Despite these measures, Zhiwei Zhang of Pinpoint Asset Management believes more rate cuts may be necessary, especially as global interest rates, particularly in the U.S., begin to decline.
Last month, China cut its RRR by 50 basis points as part of broader efforts to support an economy grappling with a prolonged property downturn and weak consumer sentiment.
In July, China surprised markets with a more significant reduction in short- and lon-term lending rates.
Third-quarter data showed a year-on-year GDP growth of 4.6%, with retail sales and industrial output figures from September exceeding expectations, offering a glimmer of hope for the country’s outlook.
However, the challenges facing business and consumer confidence remain, and further stimulus may be needed to restore full economic momentum.
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