The People's Bank of China has lowered the Loan Prime Rate (LPR), which serves as the de facto benchmark interest rate, for the first time in seven months.
The five-year LPR, which serves as the benchmark for mortgage loans, will be reduced from 3.6% to 3.5%, while the one-year LPR, which serves as the benchmark for general loans, will be lowered from 3.1% to 3.0%. Both rates have been decreased by 0.1 percentage points.
The LPR is calculated each month by aggregating the interest rates set by 20 banks, taking into account their own funding costs and risk premiums. Although a separate policy rate exists, the authorities have not adjusted it for a long time, so the LPR effectively functions as the benchmark rate.
After lowering the LPR by 0.25 percentage points in October last year to stimulate the economy, the People's Bank of China had kept it unchanged for six consecutive months. This is the first reduction in seven months.
Previously, on May 7, People's Bank of China Governor Pan Gongsheng announced at a press conference that the interest rate on seven-day reverse repurchase agreements (reverse repos) would be reduced from 1.5% to 1.4%, and also indicated that the LPR would be lowered by 0.1 percentage points.
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