People's Bank of China policy rate setting. LPRs set at:
- 3.45% for the one-year (previously 3.45%)
- 3.95% for the five-year (previously 4.20%)
- first cut to the 5-year since August, it was only 10bp that time
- 25bp is the largest cut ever
The 5-year rate serves as an influence on mortgage rates. The cut to the 5-year will therefore be a positive for China's deeply troubled property sector.
The cut to the 5-year had been expected, but not by 25bp, that's more than its ever been cut before:
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The PBOC's Loan Prime Rate (LPR):
- Its an interest rate benchmark used in China, set by the People's Bank of China each month.
- The LPR serves as a reference rate for banks when they determine the interest rates for (primarily new) loans issued to their customers.
- Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.
- Its calculated based on the interest rates that a panel of 18 selected commercial banks in China submit daily to the PBOC.
- The panel consists of both domestic and foreign banks, with different weights assigned to each bank's contributions based on their size and importance in the Chinese financial system.
- The LPR is based on the average rates submitted by these panel banks, with the highest and lowest rates excluded to reduce volatility and manipulation. The remaining rates are then ranked, and the median rate becomes the LPR.
