China cut the market-based benchmark lending rates in a bid to shore up growth.

The one-year loan prime rate (LPR) came in at 3.65 percent Monday, down from 3.7 percent, according to the National Interbank Funding Center.

The over-five-year LPR, on which many lenders base their mortgage rates, was lowered by 15 basis points to 4.3 percent.

The reduction followed the cut in the over-five-year rate in May.

The monthly-released data is a pricing reference rate for banks and is based on rates of the central bank’s open market operations, especially the medium-term lending facility rate (MLF).

 

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China’s central bank cut the interest rates of its MLF loans by 10 basis points last week, the second such move this year.

Lowering policy interest rates and guiding LPR reduction will play a positive role in reducing financing costs for the real economy, boosting the confidence of market players, and promoting the recovery of effective demand for credit, said Wen Bin, chief economist at China Minsheng Bank.

Meanwhile, the over-five-year LPR has seen a large decline, which will help to reverse market expectations, promote the recovery of the housing market and boost property sales, and is conducive to the recovery of consumption, Wen said.

At an important meeting in late July, Chinese leadership urged upholding the principle that “housing is for living in, not for speculation,” making full and good use of the policy toolkit by adopting city-specific policies, and supporting people’s essential housing needs as well as their needs for better housing.

China’s home prices in 70 large and medium-sized cities displayed a generally stable trend in July, according to data released by the National Bureau of Statistics.

Last month, 40 out of the 70 cities saw a month-on-month drop in new home sales prices, the data showed.

Echoing Wen, Dong Ximiao, chief researcher with Merchants Union Consumer Finance Company Limited, said that the over-five-year LPR cut will guide financial institutions to further reduce interest rates on new and existing mortgage loans so as to reduce the burden on most home buyers and stimulate consumer demand for housing.

Moving forward, the central bank pledged to intensify the implementation of prudent monetary policy and give full play to the functions of monetary policy tools.

More efforts will be made to maintain reasonably adequate liquidity, increase credit supply for enterprises, make good use of financial instruments, focus on supporting infrastructure development, and ensure that the money supply and social financing will grow at a reasonable rate to achieve the best possible economic performance.

Originally published by Xinhua