China cut its benchmark lending rates for a second straight month, after the central bank lowered the borrowing costs on medium-term loans earlier this week, in a bid to support a slowing economy facing a fresh wave of coronavirus cases and reeling from a string of regulatory crackdowns.
The People’s Bank of China said Thursday that it cut the one-year loan prime rate to 3.70%, 10 basis points lower than last month’s 3.80% level. The five-year loan prime rate was lowered to 4.60%, from 4.65%. It is the first time in 21 months that China has cut the two rates in the same month.
The move was widely expected by analysts and traders after the central bank on Monday lowered rates on its one-year medium-term lending facility by 10 basis points to 2.85%.
The central bank bases its benchmark lending rates each month on quotes from China’s major lenders. In turn, the banks price new loans using the loan prime rates as a reference. Since the new benchmark was introduced in 2019, Chinese banks have gradually replaced existing loans with new ones based on the new lending rates.
Thursday’s move was the Chinese central bank’s second cut to the lending rates in as many months. In December, the central bank cut the one-year loan prime rate after the country’s leaders pledged to prioritize growth stability, signaling to many economists the start of a new easing cycle.
On Tuesday, Liu Guoqiang, a vice governor of the People’s Bank of China, said the central bank would act early and more forcefully to stabilize the economy in 2022, a politically important year for Chinese leader Xi Jinping, who is widely expected to break with recent precedent and seek a third term in power at a closely watched Communist Party meeting later this year.
Liu said the central bank would guide financial institutions to expand credit issuance this year, while using a variety of tools to ensure ample market liquidity.
On Monday, China released a raft of economic data that showed slowing growth in the final months of the year, as domestic consumption was hit by new Covid-19 outbreaks and turbulence in the country’s property sector weighed on sentiment.