China cuts key lending reference rates to new all-time lows

China’s central bank cut two key lending reference rates for the first time in seven months, pushing them to new all-time lows.

The People's Bank of China (PBOC) on May 20 cut its one-year loan prime rate (LPR), referenced for general lending, to 3.0% from 3.1%. The five-year rate, the benchmark for mortgage lending, was cut to 3.5% from 3.6%, according to the PBOC's release.

The latest rate cuts came after the PBOC lowered both the LPRs by 25 basis points in October 2024.

The world's second-largest economy has set a GDP growth target of around 5.0% for 2025. As part of efforts to boost liquidity and support economic growth, the PBOC on May 7 cut its 7-day reverse repo rate, often an indicator of LPR adjustments, to 1.40% from 1.50%, along with a reduction of reserve requirement ratio (RRR) by 0.5 percentage points to 7.5%.

"The 10-bps rate cut in May could further help move mortgages a little lower, and marginally help the property market recovery process," said Lynn Song, chief economist of Greater China at ING, in a May 19 note.

While home prices in recent months have showed a generally slower rate of decline, a nationwide turnaround has yet to be confirmed, according to ING.

"Overall the more important factor remains stabilizing private sector confidence," Song said.

The rate cuts are expected to further reduce borrowing costs for businesses and individuals, help improve market confidence and support the steady growth of the real economy, according to a report from state-run Xinhua News Agency.