China cut its benchmark lending rates after the central bank lowered interest rates at the end of September as part of a series of measures aimed at reviving economic growth and halting a housing market crash.

The one-year loan prime rate (LPR) was lowered to 3.10% from 3.35%, while the five-year LPR was reduced to 3.60% from 3.85%. 

The size of the cut is at the upper bound of the range of 20 to 25 basis points (bps) forecast by People’s Bank of China (PBOC) governor Pan Gongsheng in speeches since late September, and bigger than the 20 bps reduction projected by all 17 economists surveyed by Bloomberg.

The cuts in the LPR - which is set by a group of big Chinese banks - come after the PBOC outlined steps last month to encourage households and companies to borrow money. The measures include lowering interest rates and unlocking liquidity to encourage bank lending.

The offshore yuan was nearly flat at around 7.12 per dollar. Thirty-year government bond yield was little changed at 2.3%, amid thin trading on Monday morning.

The PBOC has signalled that more easing is on the cards. Pan reiterated last Friday that the central bank may lower the reserve requirement ratio (RRR) - which frees up cash for banks to lend - by another 25 to 50 bps by year end based on the liquidity situation.

The “market likely looks past this expected LPR cut, and forward to the prospect of more easing”, said Frances Cheung, the head of foreign-exchange and rates strategy at Oversea-Chinese Banking Co (OCBC). Another cut in the RRR before year end is “highly likely”, he said.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages and other long-term loans.

China’s largest state-owned lenders cut their deposit rates last week, a step to offset the effects of lower loan rates on their narrowing profit margins.

  - Bloomberg