The People's Bank of China (PBOC), the country's central bank, on Monday announced to cut the market-based benchmark lending rate, with both the one-year loan prime rate (LPR) and the over-five-year LPR being lowered.
The one-year LPR came in at 3.1 percent on Monday, while the over-five-year LPR, on which many lenders base their mortgage rates, fell to 3.6 percent, with both reduced by 0.25 percentage points from the previous reading, according to the National Interbank Funding Center.
The monthly-released data is a pricing reference rate for banks and is based on rates of the People's Bank of China (PBOC)'s open market operations.
"This is the third cut in LPR so far this year, and it's the largest one. The decline in LPR will further push down the loan interest rates of enterprises and individuals, and the interest rates of existing and new mortgage loans will be further reduced, which will better ease the housing consumption burden of residents and promote the stabilization of the real estate market," said Dong Ximiao, chief researcher of Merchants Union Consumer Finance Company Limited.
Experts say that the large cut of 25 basis points in both one-year and over-five-year LPRs will help promote a steady decline in social financing costs, expand gross demand of macro economy, shore up a reasonable recovery in prices, and drive stable growth of the real economy.
"With the introduction of a package of incremental policies, macro policies are working towards stabilizing growth with full force. The reduction in LPR quotes is in line with the current general direction of macro policies. It is a key link in sending the signal of central bank's "aggressive interest rate cuts" to the real economy, and can provide important support for the smooth achievement and completion of the annual economic and social development goals and tasks," said Wang Qing, chief macro analyst of Golden Credit Rating.
In addition, the lowered LPR will significantly ease the burden of mortgage borrowers imposed by interests and effectively stimulate consumption, as residents' mortgage interest expenses have been greatly reduced, according to experts.
Since the beginning of this year, the over-five-year LPR has dropped by 0.6 percentage points in total.