China’s central bank, the People’s Bank of China (PBOC), made a surprising move on Monday by cutting its one-year loan prime rate while leaving its five-year rate unchanged. This decision comes in response to recent data indicating a slowdown in China’s economic growth.
The PBOC decreased the one-year loan prime rate, which affects the majority of household and corporate loans in China, by 10 basis points from 3.55% to 3.45%. While this cut fell short of the consensus expectation for a 15 basis point reduction, it marks the second time in three months that China has lowered this rate.
However, economists were expecting the PBOC to also reduce the five-year loan prime rate, which impacts most mortgages. To their surprise, the central bank decided to keep this rate steady at 4.2%, giving no explanation for deviating from market expectations.
These actions by the PBOC follow last Tuesday’s unexpected cuts to short- and medium-term lending rates. These moves were taken in response to weak credit growth and emerging deflation risks, which have raised concerns about the overall health of the Chinese economy.
Investors and policymakers are especially worried about default risks in the real estate sector and missed payments on shadow banking-linked trust products. These concerns have only heightened the urgency for the PBOC to implement policies aimed at stabilizing the market and preventing further economic slowdown.
In addition to the rate cuts, the PBOC also lowered the interest rates on certain medium-term lending facility loans to financial institutions. The rate on 401 billion yuan ($55.25 billion) worth of one-year loans was reduced by 15 basis points to 2.50% from the previous 2.65%. Overnight, seven-day, and one-month standing lending facility rates were also trimmed by 10 basis points each.
As this news is breaking, it is advised to stay updated for any further developments or announcements from the PBOC. The central bank’s decisions will have significant implications for China’s economy and could potentially impact global markets as well.