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China Cuts Loan Prime Rate To Support Credit Growth

chinacentralbank oct08 20nov19 lt

China reduced its new benchmark lending rates, as widely expected, to reduce lending costs and underpin credit growth.

The one-year loan prime rate was lowered to 4.15 percent from 4.20 percent. Likewise, the five-year loan prime rate was cut to 4.80 percent from 4.85 percent, which was the first reduction since the new rate was introduced.

The loan prime rate is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. This new lending rate replaced central bank's traditional benchmark lending rate in August.

Earlier on Monday, the People's Bank of China had lowered the seven-day repurchase rate to 2.50 percent from 2.55 percent.

PBoC Governor Yi Gang on Tuesday urged lenders to better serve the real economy. He called for strengthening counter-cyclical adjustments and boost credit support.

Elsewhere, Fitch Ratings maintained China's sovereign ratings at 'A+' with a stable outlook.

The agency said the ratings were underpinned by China's strong external finances, robust macroeconomic performance, and size as the world's second-largest economy.

However, the ratings were constrained mainly by its large structural vulnerabilities in the financial sector, relatively low per capita income and weaker governance metrics than those of 'A' rated peers.

The rating agency forecast China's growth to ease to 5.7 percent next year from 6.1 percent in 2019.

Policymakers' willingness to embrace lower rates on long-term loans hints at a possible softening of the regulatory stance toward property, Julian Evans-Pritchard and Martin Lynge Rasmussen, economists at Capital Economics, said.

With the prop from recent monetary easing likely to be underwhelming and headwinds to economic growth mounting, the PBoC is likely to start to cut rates more aggressively in the coming months, they said.

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