China cuts interest rate for first time in 20 months

China’s central bank cut a benchmark interest rate on Monday for the first time in nearly two years in a bid to kickstart growth in the world’s number two economy as it creaks under the impact of a real estate crisis and coronavirus flare-ups.

The People’s Bank of China said in a statement that it had lowered the loan prime rate (LPR) to 3.8 per cent from 3.85 per cent in November.

The move marks the first reduction of the rate -- which guides how much interest commercial banks charge to corporate borrowers -- since April 2020.

It also follows the bank’s decision earlier this month to lower the amount of cash that lenders must hold in reserve, which it said would release 1.2 trillion yuan ($188 billion) into the economy.

“Today’s cut will immediately feed through to outstanding floating rate business loans and should also lead to cheaper loans for new fixed rate borrowers,” said Mark Williams, chief Asia economist at Capital Economics.

“We expect a cut to the five-year LPR before long which will make mortgages slightly cheaper and help official efforts support housing demand,” he added.