Three Months After Reduction… Possibility of Further Reserve Requirement Ratio Cut
(BEIJING = Yonhap News) Correspondent Jeong Seong-jo reports that amid concerns that China recorded a 4.6% economic growth rate in the third quarter, placing a red flag on achieving this year’s “around 5%” growth target, the country has lowered the Loan Prime Rate (LPR), considered the de facto base rate, after three months, aiming to supply liquidity as previously announced.
The People’s Bank of China (central bank) announced on the 21st that it would lower the 5-year LPR, which serves as a benchmark for mortgage loans, from 3.85% to 3.6% and the 1-year LPR, the standard for general loans, from 3.35% to 3.1%.
In China, 20 major commercial banks submit interest rates, considering factors such as their funding costs and risk premiums, to the interbank money market center each month. The People’s Bank of China then reviews and announces the aggregated and sorted LPR.
Previously, in July, the People’s Bank of China lowered the 5-year LPR from 3.95% to 3.85% and the 1-year LPR from 3.45% to 3.35%, each by 0.1 percentage points. Since then, it has maintained the same level.
Earlier, Governor Pan Gongsheng of the People’s Bank of China mentioned during a speech at the ‘2024 Financial Street Forum’ on the 18th that frontline commercial banks had lowered their deposit rates, suggesting that the LPR announced on the 21st would also decrease by 0.2-0.25 percentage points.
Governor Pan also stated at the time that they had reduced the reserve requirement ratio (RRR) by 0.5 percentage points on September 27 and expected an additional cut of 0.25-0.5 percentage points before the end of the year, depending on market liquidity conditions.
Ahead of China’s largest holiday, the National Day holiday (October 1-7), the People’s Bank of China lowered the RRR by 0.5 percentage points, supplying 1 trillion yuan (approximately 192 trillion won) in long-term liquidity to the market. It also reduced the policy rate for 7-day reverse repurchase agreements (reverse repos) and the lending rate at the Standing Lending Facility (SLF) that provides short-term funds to commercial banks by 0.2 percentage points.