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January 21, 2022

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Benchmark lending rate cut to shore up economy

China yesterday cut the benchmark lending rate, in line with market expectations, as authorities stepped up monetary support to shore up the economy.

The one-year loan prime rate came in at 3.7 percent yesterday, down from 3.8 percent a month earlier, according to the National Interbank Funding Center.

The over-five-year LPR, on which many lenders base their mortgage rates, was lowered by 5 basis points to 4.6 percent.

The monthly-released data is based on rates of the central bank’s open market operations, especially the medium-term lending facility rate. Banks are required to set rates for new loans using the LPRs as the benchmark.

The move came in line with market expectations as the central bank on Monday cut the interest rates of the MLF loans and reverse repos by 10 basis points to lower lending costs for businesses.

Demand contraction

Although China’s economic growth saw a strong year-on-year rebound of 8.1 percent in 2021, authorities have warned of the triple pressure of demand contraction, supply shocks, and weakening expectations amid an increasingly complicated external environment.

Going into 2022, the macroeconomic environment would be less benign as stimulus in advanced economies is being withdrawn while developing countries still face substantial challenges related to the COVID-19 pandemic, which will result in weaker export demand and supply bottlenecks and cloud global prospects, noted Martin Raiser, World Bank’s country director for China.

At a press conference on Tuesday, Liu Guoqiang, deputy governor of the People’s Bank of China, called for “opening up the monetary toolbox wider” and moving ahead of the market curve to combat downward pressure on the economy.


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