The 1-year basic lending rate (LPR) is reduced by 5 basis points to 4.15%, from the previous rate of 4.2%. The prime rate for 5-year term loans also decreased by 5 basis points, from 4.85% to 4.8%.

The LPR interest rate cut is the latest in a series of gradual interest rate cuts in China as it tries to push commercial banks to increase lending to small and medium-sized businesses - which are already hurting the economy. speed reducer.

All 64 people taking part in a quick Reuters poll on Tuesday (November 19) correctly forecast the move to reduce LPR interest rates for 1-year terms. In addition, 37 participants also expected China Central Bank (PBoC) to reduce the interest rate for LPR for 5-year terms.

Yan Se, chief economist at Founder Securities in Beijing, said that the 1-year LPR rate cut followed the similar rate cuts in the previous two interbank interest rates this month, thereby emphasizing more on the goal of reducing borrowing costs to promote the operation of the economy.

The PBOC unexpectedly lowered interest rates on interbank lending - closely monitored - on Monday (November 18), the first decline in more than four years. Two weeks earlier, the PBoC also reduced the interest rate of the medium-term lending mechanism (MLF), which is a signal that policymakers are willing to act to prevent the economy's slowdown.

The 1-year LPR interest rate has been reduced by 3 times since becoming the official reference lending rate in August 2019 and this week's lowering of interest rates clearly shows that the Central Bank is willing to implement the decrease. widespread borrowing costs in spite of rising inflationary pressures (as pork prices rise sharply following the outbreak of the African Swine cholera (ASF).

“As the positive impact from the recent easing of monetary policy is likely to be overwhelmed and the winds against the economy progress more and more, we think PBOC will start to reduce interest rates. more paralysis over the next few months, ”Martin Lynge Rasmussen, China Economist at Capital Economics, said in a research report.

The 5-year LPR interest rate was also cut for the first time since its inception in August 2019. This is a measure used to value housing mortgages.

Tommy Xie, head of mainland China research at OCBC Bank, said the rate cut reflects the overall easing environment in China.

Xie said the move is aimed at "overtime" to stabilize the industrial manufacturing sector and the infrastructure sector to catch up, and added, "This is still a move to balance the situation. , but I suspect it will make a change in housing policy. ”

Some analysts noted that the remarks about real estate policy in PBOC's third quarter monetary policy statement have changed slightly compared to previous reports, thereby raising speculation. that they can loosen up in this area.

The PBoC has dropped the paragraph saying "housing is for living not for speculation", but retains the "real estate sector should not be used as a short-term stimulus to the economy" - capital appear in the 2Q2019 report.

LPR is the reference lending rate that is periodically fixed by 18 banks. PBOC adjusted the mechanism to determine LPR in August 2019, anchoring this interest rate loosely to the interest rate of the medium-term lending mechanism.

According to Vietstock