China Curbs Lending Rates post Implementation of Stimulus Policies

On October 21, China reduced its benchmark lending rates as anticipated during the monthly fixing, following a series of stimulus measures aimed at reviving the economy. The one-year loan prime rate (LPR) was lowered by 25 basis points to 3.10%, down from 3.35%, while the five-year LPR was similarly cut to 3.60% from 3.85%. This marks the first cut since July.

People's Bank of China (PBOC) Governor Pan Gongsheng had indicated last week that lending rates would be reduced by 20 to 25 basis points on this date. The PBOC previously implemented several measures on September 24, including a 50 basis point cut to banks' reserve requirement ratios and a 20 basis point reduction in the benchmark seven-day reverse repo rate. This aggressive stimulus package is intended to support the struggling property sector and boost consumer spending.

The medium-term lending facility rate was also reduced by 30 basis points last month. The one-year LPR is the basis for most new and outstanding loans, while the five-year rate plays a crucial role in mortgage pricing.

Since the stimulus measures began on September 24, the CSI300 Index has shown remarkable volatility, achieving over 14% growth overall, although the yuan has depreciated by 1% against the dollar during the same timeframe.

However, the stock market has experienced fluctuations recently, as initial optimism has been tempered by concerns over whether the policy support is sufficient to drive robust economic recovery. While data released on Friday indicated that China’s economic growth in the third quarter was slightly better than expected, property investment declined by over 10% in the first nine months of the year, although retail sales and industrial production saw improvements in September.