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The Loan Prime Rate Cut of China Disappoints

The PBOC released on Monday the loan prime rate cuts. (Photo:

People’s Bank of China cut its one-year loan prime rate on Monday, and it was smaller than what was expected. Meanwhile the five-year rate was unchanged as the country is grappling with their slowing economy.

The PBOC released on Monday the loan prime rate cuts. (Photo:

On Monday, the People’s Bank of China reduced the loan prime rate for one year, although not as much as was anticipated. Although, five-year rates were unchanged as China grappled with their economy slowing down.

According to, The People’s bank of China cut its one-year loan rate from 3.55% to a 3.45%. While the five-year loan prime rates were left unchanged at 4.20%, this 5-year loan prime rate is used to determine the mortgage rates. Analysts have been expecting a 15-base point cut for each loan prime rate.

The cut in the loan prime rate was telegraphed by the People’s Republic of China, given that the bank had trimmed the medium- and short-term lending rates by 15 basis points each last week despite growing concerns over China’s economy. The loan prime rate is decided by the central bank based on the considerations that was taken from 18 designated commercial banks and is used as a benchmark for borrowing conditions in China.

The disappointing loan prime rate cut on Monday comes as The People’s Bank of China struggles to maintain a balance between supporting Chinas economy and stemming further the weakness of Yuan suffers by falling interest rates. Yuan, China’s currency, has recently sank to its lowest level in over nine months.

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The People’s Bank of China stated on Sunday that the country will coordinate financial support to resolve local government debts risk, as well as redice the systemic risks. While also attempting to cut financing costs for China’s economy and alter and optimize credit policies for the real estate sector.

According to CNBC, the People’s Bank of China lowered the rate on 401-billion-yuan worth of one-year medium term lending facility loans to financial institutions. The rates on the seven-day and one-month standing lending facilities were each reduced by 10 basis points overnight.

The People’s Bank of China was expected to cut the five-year loan prime rate as a means to support the real estate sectors by loosening lending conditions. Julian Evans-Pritchard, the Capital Economics’ head of China, wrote in a note that states that the underwhelming loan prime rate announcement by the People’s Bank of China strengthens the view that the central bank would unlikely embrace the much larger rate cuts that is required to revive the credit demands.

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