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China cuts key interest rate to support economy

To reinvigorate the economy, the central bank reduced the rate for its medium-term lending facility (MLF) to financial institutions last Tuesday. (AFP)
  • The one-year loan prime rate was reduced from 3.55 percent to 3.45 percent, the People's Bank of China said in a statement
  • The decision is intended to encourage commercial banks to grant more loans and at more advantageous rates

Beijing, China– China’s central bank on Monday cut a key interest rate in an attempt to counter the post-Covid growth slowdown in the world’s second-largest economy.

The one-year loan prime rate, which serves as a benchmark for corporate loans, was reduced from 3.55 percent to 3.45 percent, the People’s Bank of China (PBoC) said in a statement, while the five-year LPR, which is used to price mortgages, was held at 4.2 percent.

Closely followed by the markets, the two rates are now at historic lows, after previous reductions in June.

The decision is intended to encourage commercial banks to grant more loans and at more advantageous rates.

Monday’s measures — which run counter to rising interest rates around the world as other major economies work to curb inflation — will indirectly support economic activity as China’s growth flags.

The long-awaited post-Covid recovery following the lifting of health restrictions at the end of 2022 has run out of steam in recent months.

To reinvigorate the economy, the central bank reduced the rate for its medium-term lending facility (MLF) to financial institutions last Tuesday.