China Cuts 1-Year Loan Prime Rate For First Time Since Early 2020

China cut its benchmark loan prime rate for the first time in 20 months.

The one-year loan prime rate was lowered to 3.80 percent from 3.85 percent. At the same time, the five-year LPR was maintained at 4.65 percent.

The one-year and five-year loan prime rates were last reduced in April 2020. The one-year loan prime rate was cut by 20 basis points and five-year rate by 10 basis points in April 2020.

The loan prime rate is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. This lending rate replaced the central bank’s traditional benchmark lending rate in August 2019.

Mark Williams, an economist at Capital Economics, said a further 45 basis point of cuts to the one-year LPR during 2022 is expected.

The economist forecasts a cut to the five-year LPR before long which will make mortgages slightly cheaper and help official efforts support housing demand.

The overall impression, including from today’s announcement, is that policy is being eased but not dramatically, said Williams.

The marginal reduction in loan prime rate came after the People’s Bank of China last week lowered its reserve requirement ratio for major commercial banks by 50 basis points.

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