China's Central Bank Reduces Benchmark Lending Rates to Stimulate Economy

China's central banking institution, the People's Bank of China PBOC, has announced a reduction in benchmark ling rates by 25 basis points. The one-year loan prime rate LPR now stands at 3.1, while the five-year LPR is set to 3.6. These adjustments affect corporate loans and most household loans in China, with the latter serving as a key reference for mortgage interest rates.

This move comes as expected; Governor Pan Gongsheng previously indicated that such cuts of about 20-25 basis points would occur at the monthly fixing during an event held in Beijing. He further suggested that by the of this year, China's reserve requirement ratio RRR, which dictates how much banks must hold in reserves, might be lowered another 25-50 basis points deping on liquidity conditions.

The PBOC also announced plans to decrease the seven-day reverse repurchase rate and medium-term ling facility rates by 20 and 30 basis points respectively.

Despite expectations for lower interest rates, experts noted that this reduction alone may not stimulate China's economy sufficiently, with calls for increased fiscal stimulus growing stronger.

The issue is not so much the cost of money or supply; it's about the lack of demand, sd Shane Oliver, Head of Investment Strategy and Chief Economist at AMP. Fiscal stimulus is crucial.

As previously reported by CNBC’s Evelyn Cheng, China had recently reduced its reserve requirement ratio by 50 basis points in an effort to support its struggling economy facing challenges such as a protracted real estate crisis and weak consumer sentiment.

In July, China made notable cuts to both major short-term and long-term ling rates, surprising financial markets. The most recent rate cut was accompanied by additional measures from the PBOC med at shoring up the country's flagging economic performance.

Last week, China released slightly better-than-expected third-quarter GDP growth data of 4.6 year-on-year. This positive news was further supported by beat-the-expectations retl sales and industrial production figures for September.

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