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China Lowers 1-Year Prime Lending Rate

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China's central bank reduced its one-year loan prime rate marginally but retained its five-year lending rate on Friday.

The People's Bank of China set the one-year lending rate at 4.20 percent compared to 4.25 percent in August. The five-year lending rate was maintained at 4.85 percent.

Julian Evans-Pritchard, an economist at Capital Economics, said this is another small step towards lower rates. The decline in the one-year LPR appears to be the result of PBoC easing.

While the latest LPR reduction should nudge banks to reduce lending rates slightly, the impact on economic activity will be marginal, the economist noted.

With economic activity likely to come under further pressure in the coming quarters and monetary easing so far failing to generate much of a pick-up in credit growth, the economist said the PBoC will need to start engineering larger declines in the LPR before long.

Early this month, the central bank had reduced the amount of cash that banks should set aside as reserves for the third time in 2019 to spur liquidity. The reserve requirement ratio, or RRR, was lowered by 50 basis points.

Other major central banks namely US Federal Reserve and the European Central Bank resorted to loosening its policy this month. On Wednesday, the Fed reduced the rate by a quarter-point citing murky outlook. The ECB had unveiled a wide range of measures including rate reduction last week.

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