On October 21st, the Mainland China Loan Prime Rate (LPR) was announced with both the 1-year and 5-year rates being reduced by 25 basis points, marking the largest single decrease in history.
According to the announcement from the People’s Bank of China, the 1-year Loan Prime Rate is lowered from 3.35% to 3.10%, and the 5-year LPR is adjusted from 3.85% to 3.60%. These rates will remain effective until the next release of the LPR.
The majority of new loans and outstanding loans in China are based on the 1-year LPR, while the 5-year LPR affects the pricing of mortgage loans.
This rate cut follows the previous reduction in loan rates in July, bringing them to historically low levels.
The Governor of the People’s Bank of China, Pan Gongsheng, unusually hinted at the Financial Street Forum Annual Meeting last week that the loan rates to be announced on October 21st would be lowered by 20 to 25 basis points.
At a press conference held by the State Council Information Office on September 24th, the People’s Bank of China announced a 0.5 percentage point cut in the reserve requirement ratio, injecting about 1 trillion yuan of long-term liquidity into the financial market. Additionally, the 7-day reverse repo rate was reduced by 20 basis points to 1.5%. These measures are among the most significant stimulus actions taken since the outbreak of the pandemic, aimed at supporting the sluggish real estate market and boosting consumer growth.
Since the announcement of these measures on September 24th, the Mainland Chinese stock market has experienced a brief but irrational surge. However, in recent trading days, the market has shown greater volatility, with the initial optimism gradually fading as concerns arise regarding the adequacy of policy support to stimulate growth.
It is expected that on October 25th, the People’s Bank of China will also conduct a 1-year Medium-term Lending Facility (MLF) operation. Last month, the MLF rate was cut by 30 basis points.
Recent data from last week indicated that China’s economic growth in the third quarter increased by 4.6% year-on-year, marking the lowest growth rate since early 2023. Furthermore, the downturn in the real estate industry continues to pose a significant challenge, with real estate development investment declining by over 10% in the first 9 months of this year.