China trims 1-year rate, but unexpectedly leaves 5-year rate unchanged

A night view of the Central Business District in Beijing, China, Nov 10, 2021.

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China’s central bank cut its one-year loan prime rate Monday, the second time in three months it has done so, underscoring the urgency of bolstering growth in the world’s second-largest economy.

The People’s Bank of China cut its one-year loan prime rate by 10 basis points from 3.55% to 3.45%, but left its five-year loan prime rate unchanged at 4.2%. The last time the central bank cut these rates was in June and August 2022.

Most household and corporate loans in China are based on the PBOC’s one-year loan prime rate, while mortgages are pegged to the five-year rate.

Monday’s actions follow surprise cuts to its short- and medium-term lending rates last Tuesday after a raft of economic data pointed to weak credit growth and emerging deflation risks, intensifying fears of a rapidly slowing economy.

Default risks in real estate and missed payments on some shadow banking-linked trust products are further spooking investors and policymakers.

The PBOC had lowered the rate on 401 billion yuan ($55.25 billion) worth of one-year medium-term lending facility loans to some financial institutions by 15 basis points to 2.50% from 2.65% previously. Overnight, seven-day, and one-month standing lending facility rates were each trimmed by 10 basis points to 2.65%, 2.8% and 3.15%, respectively.

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