China lowered its new benchmark lending rate on Wednesday, in an attempt to give a boost to the slowing economy and reduce funding costs.
The one-year loan prime rate (LPR) CNYLPR1Y=CFXS was reduced by five basis points to 4.15% from 4.20% at the previous monthly fixing.
The five-year LPR CNYLPR5Y=CFXS was also cut by the same amount to 4.80% from 4.85%.
This wasn’t the first time that the one-year LPR was lowered—it has been lowered thrice since it became the official lending benchmark in August.
Another action that the central bank took this week was lowering the interest rate on its regular reverse repurchase open market operations, the first such cut since Oct 2015.
The PBOC injected a net 80 billion yuan ($25.68 billion) of cash into the monetary system by cutting the seven-day reverse repurchase rate to 2.5% from 2.55%.
Disappointing October growth data
The central bank's actions are seen as a keen effort to lift the diminishing growth in the country.
The October economic and financial data that China recently released was disappointing .
China’s value-added industrial output in October rose 4.7% from a year earlier, down from September’s 5.8% pace, data from the National Bureau of Statistics indicates.
Retail sales increased by 7.2%, the smallest gain in six months while fixed-asset investment in urban areas increased 5.2% in the first 10 months of 2019 from a year earlier, a record low for the period, according to official data.
Research house: Q3 GDP lower than announced
Morningstar said earlier in a recent report that the country’s Q3 GDP growth was a mere 3% instead of the officially announced 6%.
The primary reason for the country’s slowdown in Q3 was a collapse in internal consumer demand, according to the report.
Even with higher tariffs imposed by the US, trade hasn’t been a major headwind for the country’s economy, the report notes.
However, if trade negotitions between the two countries breaks down again, the average US tariff on Chinese imports would serve to more than 20% by early 2020, compared with 12% in Q3, Morningstar said.
In addition, the US wasn’t the only country that imported less from China. According to Morningstar, other major trading partners also bought less from China, the company added.
China shouldn’t expect huge gains from trade with countries outside the US, Morningstar noted, adding that it expects further easing from China via reserve requirement ratio cut or medium-term lending facility rate cut in the near term.