China Cuts Benchmark Rate by Less Than Expected

China’s benchmark lending rate was lowered by a smaller-than-expected margin on Monday, after the central bank cut its key policy rates last week to offer more support for the slowing economy.

The one-year loan prime rate was lowered by 10 basis points to 3.45% while the five-year LPR was held at 4.2%, the People’s Bank of China said.

The PBOC cut the interest rate of the one-year medium-term lending facility by 15 basis points to 2.5% last week. The MLF rates are used in China to price the benchmark LPR, prompting expectations for cut of more than 10 basis points.

The smaller reduction in LPR may reflect Chinese lenders’ reluctance to reduce their lending rates as they face narrowing profit margins. The benchmark rate was set by using quotations from a group of Chinese lenders that price their prime loans to clients based on PBOC’s MLF rates.

The rate cut came after the Chinese economy slowed across the board in July.

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