China trims lending rates again, one week after surprise cuts in key rates - CNBC

A man looks at his smartphone as he walks past the People's Bank of China building on May 20, 2022 in Beijing.

Jiang Qiming | China News Service | Getty Images

China trimmed its key lending rates again on Monday, one week after it cut two interest rates in a surprise move.

The moves are seen as an attempt to revive credit demand and fire up the economy hurt by extended Covid lockdowns and property debt problems.

The People's Bank of China cut its five-year loan prime rate by 15 basis points to 4.30% from 4.45%, and lowered its one-year loan prime rate by 5 basis points to 3.65%.

Most new loans in China are based on the one-year LPR.

Last week, the Chinese central bank lowered the rate of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points. It also cut the the seven-day reverse repo rate by 10 basis points to 2%.

Though the LPR cut may provide near-term relief, easing liquidity alone is unlikely to lead to a turnaround to the property market.

David Chao

Invesco

Positive reactions to last week's rate changes were short-lived, said analysts such as Navigate Commodities managing director Atilla Widnell.

"Fresh monetary easing/stimulus was seen as futile as 'flogging a dead horse,' given that China's economy desperately needs consumers back on the streets spending money," he said in a note.

In relation to the latest round of cuts, David Chao, global market strategist for Asia Pacific (ex-Japan) at Invesco said it hinted at the seriousness of the property market downturn.

However, he conceded that these cuts won't be enough to increase liquidity.

"It sends a strong message that policymakers are willing to take more forceful actions to stabilize the ailing market," he said in a note.

"Though the LPR cut may provide near-term relief, easing liquidity alone is unlikely to lead to a turnaround to the property market."

He added that lower mortgage rates haven't translated into higher property sales so far, "due to the lack of confidence in large developers and the presales model."

Chao said he doesn't expect these to be last of the monetary policy fixes to come from the Chinese authorities, especially when "central and local governments have the financial tools to provide an excess of 3 trillion yuan to boost the property sector."