People's Bank of China Cuts 'De Facto Benchmark Rate' LPR by 0.25%P

China's central bank, the People's Bank of China, announced on the 21st that it will cut the loan prime rate (LPR), the "de facto benchmark interest rate," by 0.25 percentage points.

The 5-year LPR, which serves as the benchmark for mortgage loans, was lowered from 3.85% to 3.6%, and the 1-year LPR, which acts as the benchmark for general loans, was reduced from 3.35% to 3.1%.

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The LPR is calculated by aggregating the loan rates for the best customers from 18 designated banks. Since local financial institutions base their lending on this rate, it effectively functions as the benchmark interest rate.

The People's Bank of China had previously cut the 5-year LPR from 3.95% to 3.85% and the 1-year LPR from 3.45% to 3.35% by 0.1 percentage points each in July, then kept the rates steady until this reduction after three months.

This LPR cut is interpreted as a measure to expand liquidity supply in the market and stimulate the economy. China’s third-quarter gross domestic product (GDP) grew by 4.6% year-on-year, but the prolonged economic slowdown has made it uncertain whether the country will achieve its annual growth target of around 5%.

On the 18th, Pan Gongsheng, Governor of the People's Bank of China, unusually hinted in a public appearance at the possibility of lowering the LPR by 0.2 to 0.25%. On the same morning, major state-owned commercial banks in China simultaneously cut yuan deposit rates by 0.25 percentage points.

Earlier, ahead of China's largest holiday, the National Day (October 1-7), the People's Bank of China lowered the reserve requirement ratio by 0.5 percentage points, supplying 1 trillion yuan (approximately 192 trillion won) in long-term liquidity. It also cut the policy rates?the 7-day reverse repurchase agreement (reverse repo) rate and the short-term liquidity facility (SLF) loan rate for short-term funds to commercial banks?by 0.2 percentage points each.

This content was produced with the assistance of AI translation services.