PBOC Lowers Key Lending Rate After Fed Cuts Interest Rates

Posted Friday, September 20, 2019 by
Arslan Butt • 1 min read

For the second consecutive month, PBOC announced a slight cut in its new one-year benchmark lending rate. The one-year Loan Prime Rate (LPR) now stands at 4.20% from 4.25% in August. On Monday, PBOC had lowered banks’ reserve requirements.

This latest move comes on the back of the Fed’s decision to cut interest rates by 0.25%. The reduced rates should help banks lower their borrowing costs as China’s central bank tries to revive spending and boost the weakening economy in the face of the ongoing trade war with the US.

The LPR is a lending reference rate set by 18 banks and is loosely pegged to the medium-term lending rates. Economists are expecting the PBOC to lower LPR by another 5-10 bp in November in a bid to reduce borrowing costs further to boost the Chinese economy.

On Friday, the Chinese yuan is gaining against the US dollar, turning USD/CNH bearish. At the time of writing, this forex pair is trading at around 7.077.

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