China Reduces Key Lending Rates in Bid to Rev up Economy

China reduced its key lending rates on Monday – as promised by the country’s central bank, after other policy rates were cut last month.

The moves are part of a range of stimulus measures that aim to reinvigorate the economy.

The one-year loan prime rate (LPR) was lowered by 25 basis points to 3.10% from 3.35%, the five-year LPR was cut by the same margin to 3.6% from 3.85% previously. The lending rates were last cut in July.

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People’s Bank of China (PBOC) Governor Pan Gongsheng told a financial forum last week lending rates will decrease by 20 to 25 basis points on October 21.

The PBOC announced cuts to banks’ reserve requirement ratio by 50 basis points and the benchmark seven-day reverse repo rate by 20 basis points on September 24, kicking off the most aggressive stimulus since the pandemic that include measures to support the ailing property sector and boost consumption.

It also cut the medium-term lending facility rate by 30 basis points last month.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.

Since the September 24 measures, the CSI-300 Index has broken records for daily moves and is up more than 14% overall. The yuan is down 1% against the dollar in that period.

Stocks have wobbled in recent sessions, though, as initial enthusiasm gave way to concerns about whether policy support would be big enough to revive growth.

Data on Friday showed China’s economic growth was slightly better than expected in the third quarter, although property investment fell more than 10% in the first nine months of the year. Retail sales and industrial production picked up in September.

Officials addressing a press conference on Friday expressed confidence the economy can achieve the government’s full year growth target of around 5%, and flagged another cut to banks’ reserve ratio by the year-end.

“How influential further easing proves to be in China & Hong Kong equity and the CNH is up for debate, as market participants may be feeling a sense of policy easing fatigue,” Chris Weston, head of research at Australian online broker Pepperstone, said in a note.