PBoC announces smaller-than-expected rate cut

The People’s Bank of China announced a smaller-than-expected rate cut on Monday.

The Bank cut the one-year loan prime rate by 10 basis points to 3.45%, versus consensus expectations of a 15 basis points cut.

Meanwhile, the five-year loan prime rate - which affects mortgage prices - was unexpectedly left unchanged at 4.20%. Analysts had been expecting a 15bps cut, especially after the medium-term loan rate was reduced last week.

Capital Economics said: "The underwhelming LPR announcement strengthens our view that the PBOC is unlikely to embrace the much larger rates cuts that would be required to revive credit demand.

"Hopes for a stimulus-led turnaround in economic activity largely depend on the prospect of greater fiscal support."

Danske Bank said the decision to leave the five-year LPR on hold "probably reflects concerns about a weaker yuan, which has had a tough year".