China Economy

China's cuts new one-year lending benchmark rate marginally

Key Points
  • The largely-expected reduction in the one-year Loan Prime Rate (LPR) came after the People's Bank of China (PBOC) lowered banks' reserve requirements on Monday.
  • It also comes shortly after the Federal Reserve cut U.S. interest rates by 25 basis points.
  • The one-year Loan Prime Rate (LPR) dipped to 4.20% at its monthly fixing on Friday, 5 bps lower than 4.25% in August. 
Pedestrians walk past the People's Bank of China headquarters in Beijing, China, on January 7, 2019.
Giulia Marchi | Bloomberg | Getty Images

China cut its new one-year benchmark lending rate for the second month in a row on Friday, to 4.20%, as the central bank seeks to guide borrowing costs lower for an economy hit by the Sino-U.S. trade war.

The largely-expected reduction in the one-year Loan Prime Rate (LPR) came after the People's Bank of China (PBOC) lowered banks' reserve requirements on Monday. It also comes shortly after the Federal Reserve cut U.S. interest rates by 25 basis points.

The one-year LPR dipped to 4.20% at its monthly fixing on Friday, 5 bps lower than 4.25% in August. However, the five-year LPR was unchanged at 4.85%.

Friday's was the second reduction in the one-year LPR, a lending reference rate set by 18 banks that the PBOC revamped last month, loosely pegging it to the rate on its medium-term lending facility (MLF). The MLF rate at 3.3% was last cut in early 2016.

A lower LPR could translate to lower borrowing costs for companies and consumers in a slowing economy.