The People's Bank of China cut its one-year loan prime rate by 5 basis points to 4.20%, marking the second reduction in the new reference point for new loans issued by domestic banks.
The PBoC kept the five-year LPR at 4.85%. The decision came days after the central bank cut the reserve requirement ratio for all banks by 0.5 percentage points.
The LPR is set every month based on interest rate quotations submitted by 18 banks, which borrow from the central bank through its medium-term lending facility. Earlier this week, the PBoC kept the medium-term lending facility rate at 3.3%.
"Since the new LPR is relatively untested, the PBoC appears to be taking a measured approach at first," wrote Julian Evans-Pritchard, senior China economist at Capital Economics, in a note following the central bank's decision. However, as China's economy is likely to come under further pressure in the near term, with the PBoC's easing measures failing to boost credit growth, the central bank may have to "start engineering larger declines in the LPR before long," he added.
