China is reducing its loan benchmark LPR Reuters for the first time since April 2020

SHANGHAI (Reuters) – China cut its benchmark loan rate (LPR) for the first time in 20 months on Monday, in line with market expectations, in a bid to boost a slowing economy.

The one-year LPR fell by 5 basis points, from the previous 3.85% to 3.80%, and the five-year LPR stood at 4.65%.

The reduction marks the first LPR reduction since April 2020.

Twenty-nine of the 40 traders and economists surveyed by Reuters last week predicted cuts in the LPR.

Some analysts have blamed the one-year LPR reduction on the cost of financing banks ’funding this year as the central bank’s reserve requirement ratio (RRR) follows two cuts.

The People’s Bank of China (PBOC) last week cut the amount of money banks need to hold in reserve, the second move this year, releasing 1.2 trillion yuan in long-term liquidity to slow economic growth.

While the move to lower Beijing’s LPR was highly anticipated, China also highlights divergence from other major central banks in the world, which will raise interest rates.

Some analysts hope that Beijing can be further eased to halt the economic slowdown.

A number of recent economic indicators, including retail sales and investment growth, indicate that the economy is slowing, and a tightening of regulation against the technology sector has dampened investor sentiment and new cuts in coping with the rise in COVID-19 cases could put pressure on growth.

“We expect another 45 bp reduction in 2022,” Mark Williams, chief economist at Capital Economics, said in a statement.

“Equally important is the quantitative control of credit, including local government lending. The first signs of this will calm down, but not much. The overall impression, including today’s announcement, is that the policy is being eased, but not significantly.”

China’s newest and most outstanding loans are based on the one-year LPR. The five-year rate affects the price of the mortgage.