PBOC cuts two key lending rates

The People’s Bank of China cut two key lending rates on Tuesday as it looks to bolster the economy.

The central bank cut the one-year loan prime rate by 10 basis points to 3.55% and the five-year rate by 10 basis points to 4.2%. This was the first such move in 10 months.

Capital Economics said: "The cuts will lower interest payments on existing loans, taking some pressure off indebted firms. It will also nudge down the price of new loans. However, homebuyers with existing mortgages will have to wait until the start of next year for the change to affect them."

Economist Julian Evans-Pritchard added: "All told, we think monetary easing will provide some modest support to credit growth and wider economic activity. We anticipate at least one more cut to policy rates and reserve requirements during the rest of this year.

"However, small tweaks to interest rates and reserve requirements won’t drive much of a pick-up in household or corporate borrowing and spending on their own. We expect fiscal policy to offer additional support - there is already talk of a RMB1trn sovereign special bond issuance (0.8% of GDP) to fund infrastructure spending."