The benchmark five-year loan prime rate (LPR) was lowered to
3.6% from 3.85%, while the one-year lending rate was also cut to 3.1% from
3.35%.
For Chinese households with mortgage loans of 1 million yuan
(US$140,000), the monthly instalment payment would be reduced by around 141.5
yuan (US$19.9) after the cut to the five-year LPR.
The move was expected as central bank governor Pan Gongsheng
had said at a financial forum on Friday that lending rates would decrease
by between 20 to 25 basis points.
The rates were last cut in July.
“The rate cut is broadly in line with market expectations,” said
Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.
“It is an encouraging sign that the monetary policy is
moving in the right direction to fight deflation.”
The move came as Beijing has taken an all-out effort to
drive up the struggling property market.
Speaking at a press conference on Thursday, the housing
ministry said it would double the credit to white list property projects
to 4 trillion yuan by the end of the year and renovate 1 million units in urban
villages.
“The monetary policy has clearly shifted to a more
supportive stance since the press conference on September 24. The
real interest rate in China is too high,” Zhang added.
Analysts expected more rate cuts in the coming quarters,
after Pan indicated on Friday plans to further cut the reserve requirement
ratio – the amount of cash that commercial banks must hold as reserve – for
banks.
“But this is unlikely to boost loan demand much,” said Huang
Zichun, an economist at Capital Economics, who noted weak credit demand as the
main constraint.
“And without a rebound in inflation, which we don’t foresee,
real lending rates will remain restrictive unless policy rates are cut by a lot
more.
“The heavy lifting will need to come from fiscal policy.”
