As expected, the People’s Bank of China further loosened monetary policy by cutting its 1-year loan prime rate which is used as a benchmark for the best clients of 18 select commercial banks.
The PBoC made a 5 basis point to the 1-year LPR and the 5-year LPR, used as a reference rate for new mortgage loans, resulting in interest rates of 4.15 percent and 4.80 percent, respectively. The widely expected move followed similar cuts the PBoC made to its one-year medium-term lending facility (MLF) and 7-day reserve repo rate.
But despite loosening from the top, it remains to be seen if the benefits of stimulus will be felt by the real economy, evidenced by comments from the central bank governor Yi Gang.
«[We] must convince financial institutions to change their loan pricing mentality, and truly align them to the Loan Prime Rate to promote the decline of actual market lending rates,» Yi said to the heads of six major state-owned banks at a recent credit conference, adding in an online statement that the central bank would boost lending capacity with increased capital.
