PBOC cuts rates to absorb pandemic's effects

A teller counts cash at a bank branch in Hangzhou, capital of East China's Zhejiang province. (Photo by Hu Jianhuan/For China Daily)

China's central bank cut the benchmark lending rate by 0.2 percentage points on Monday, the largest decline since the new rate was set in August 2019, to lower financing costs and offset downward pressures from the coronavirus pandemic.

The one-year loan prime rate, which reflects the lending rate 18 banks offer to their best clients, decreased to 3.85 percent, down from 4.05 percent. The five-year LPR, which is related to mortgage rates, dropped by 0.1 percentage point to 4.65 percent according to the People's Bank of China, the central bank.

Analysts said the move was in line with market expectations, and there is still policy room for further cuts of interest rates and reserve requirement ratios to keep ample liquidity and support smaller companies.

Wen Bin, chief economist with China Minsheng Bank, said to limit the pandemic shocks on the economy, China needs to continually lower market lending rates and the financing costs of corporate bonds, to support a rebound of the real economy in the coming months.

The PBOC cut the one-year interest rate of the medium-term lending facility last week to 2.95 percent, down from 3.15 percent. This rate was seen as the basis of the one-year LPR.