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China cut benchmark lending rate for the first time in ten months in a move to shore up the slowing economic recovery.
The one-year Loan Prime Rate (LPR) is reduced to 3.55% from previous 3.65% and the five-year LPR is cut to 4.2% from previous 4.3%, the People’s Bank of China said on Tuesday.
The latest monetary loosening comes as a post-pandemic recovery in the world’s second-largest economy shows signs of losing the initial momentum seen in the first quarter.
While the cut is in line with Goldman Sachs’ forecasts, it might be disappointing for some forecasters who expected a deeper cut of at least 15 bps to the 5-year LPR in order to shore up the property sector, the bank said in a note.
A gauge of Hong Kong-listed Chinese developers, the Hang Seng mainland properties index, fell more than 3%, with Country Garden slumping by about 5%. About half the participants in a Reuters poll had forecast a deeper cut of at least 15 bps to the five-year rate.
The latest rate cut come on the heels of two monetary easing moves last week. Last Thursday, the PBOC cut its one-year medium-term loan facility for the first time in 10 months, and lowered its seven-day reverse repurchase rate on Monday last week.
Goldman Sachs continued to expect more easing policy measures in mainland China in the coming weeks, especially on fiscal, housing and consumption fronts, although the stimulus should be smaller than previous easing cycles.
Given the more challenging long-term demographic trends, already high debt levels, and the policy stance of “housing is for living in, not for speculation”, the easing of housing policies is expecte to be limited, it said.
On Friday, China’s State Council pledged to roll out “more forceful measures” in a timely manner to “enhance the momentum of economic development, optimize the economic structure, and promote the sustained recovery of the economy.”