The news on the cut to the Loan Prime Rate (5-year) is here:
Since the weekend there had been a cascade of expectations for a cut to the 5-year, but expectations centred on a 10bp reduction, not the relatively large slashing we got of 25bp:
With the cut, China is attempting to ramp up credit demand and revive the property market.
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China's real estate sector is up after the cut in trade on the Hong Kong exchange.
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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.
